Fighting Precursor Misuse
- Erika Trujillo
- Apr 1
- 11 min read
Trade compliance in the Pharmaceutical Industry: Beyond Sanctions Circumvention
Erika D. Trujillo With Contribution from:
Director Welli Joseph Milton
SEIA EMEA Regional Manager for Export Controls
Recently, I had the pleasure of attending the Trade Compliances in Life Sciences conference in Zürich, Switzerland together with colleagues from across the pharmaceuticals and medical devices industries. Among the many insightful presentations, one that really stood out was that of Mr. Wellington Joseph Milton, an EMEA Manger for Export Controls and Sanctions for a leading Pharmaceutical Company. His talk shed light on a critical yet often overlooked challenge within the pharmaceutical industry: the prevention of pharmaceutical product misuse for illegal drug manufacturing, specifically the misuse of precursors, as well as compliance with anti-torture regulations.
While the trade compliance community is increasingly focused on global geopolitical shifts driving stricter compliance in the areas of sanctions circumvention and export controls, the pharmaceutical industry continues to grapple with an additional burden: preventing the illegal diversion of precursor chemicals.
I asked Welli to support me in this deep-dive into the issue of Precursor diversion, as it is an often overlooked topic and also an excellent example of how SEIA can support some of these more complex risk areas that are less straightforward from an internal control perspective.
-- Erika
Contents
1. Introduction
2. Rising Threat of Precursor Misuse
3. Understanding Trade Restrictions on Precursors
Penalties and Consequences of Unauthorized Drug Precursor Export
Core Compliance Challenges for Companies
How SEIA Can Help
Introduction
Source: UNODC Regional Office for Southeast Asia and The Pacific- Drugs and Precursors [1]
There are many reasons why trade may be restricted or items controlled for export, including for humanitarian causes, the protection of international security, and counter-proliferation, among others.
However, a category often overshadowed by current events in sanctions and tariff wars is the trafficking of illegal drugs and their associated precursor chemicals. In fact, these are some of the most frequently encountered transnational crimes, not only generating significant illicit profits, but also threatening the health and welfare of people, families and societies across the globe.[2] These illegal drug schemes accelerate conflicts but are usually also coupled with human rights abuses and environmental devastation.[3]
What are Precursors?
A precursor is a compound that participates in a chemical reaction that produces another compound.[4]
Precursor chemicals, also known as scheduled substances or drug precursors, are a critical component in the manufacture of legitimate pharmaceuticals, such as cold medication. However, these substances can also be easily repurposed for the synthesis of more complex compounds, such as in the manufacturing of narcotics and psychotropic substances like methamphetamine, heroin, and synthetic opioids. [5]
For example:
Ephedrine and Pseudoephedrine- common decongestants but are also key ingredients in methamphetamine production.
Acetic anhydride- used in the production of aspirin and acetaminophen but can also be employed to produce heroin.
Phenylacetone- an intermediate in the production of certain legal medications but is frequently diverted for amphetamine synthesis.
The Rising Threat of Precursor Chemical Misuse
“Cocaine production is at a record high, and seizures of amphetamine and methamphetamine have skyrocketed. Markets for these drugs are expanding to new and more vulnerable regions.”
- UN World Drug Report 2022
Combating the diversion and trafficking of drug precursors is a significant objective on the global agenda, as evidenced by the increasing activities of the UNODC and the focus placed on these activities in the EU Drugs Strategy 2021-2025.[6] This is in response to concerning trends in trafficking for many of the drugs of concern, including high quantities of these substances being sized in critical transshipment countries, indicating an increasing risk of their use in illegal drug manufacturing.
For example, according to a UNODC publication on Drug Market Trends targeting Cocaine Amphetamine-Type Stimulants and new Psychoactive Substances, benzyl chloride and benzyl cyanide have been increasingly seized in Jordan, Mexico and the Netherlands, and in East and South-East Asia increased quantities of several other non-controlled precursor chemicals used in the manufacture of ephedrine and pseudoephedrine have been seized.[1]
Some of the key recent trends identified by the International Narcotics Board related to Precursors include:[2]
· Highest quantities reported seized in Europe in over two decades.
· Global quantity of ephedrines seized surpasses those of the previous two years combined.
· Seized quantities of preparations containing pseudoephedrine increased.
· Largest siezed quantities of ephedrine raw material by Pakistan, indicating the possible emergence of a new trafficking route from West Asia to Europe.
· Suspected diversion of 500 kg of ephedrine and 500 kg of pseudoephedrine pre-notified for export from Europe to Africa via PEN Online highlights the need for heightened vigilance by Governments.
· Seizure of a P-2-P methyl glycidic acid derivative in South African illicit laboratory is the first instance reported to INCB of these chemicals being used in the illicit manufacture of methamphetamine.
· Industrial-scale illicit manufacture of methamphetamine in North America and South-East Asia.
Diversion Case Study from INCB: 500 kg each of French origin ephedrine and pseudoephedrine
Compliance with Precursor Trade Restrictions
In the interest of stopping the production of illicit drugs and combating diversion of these sensitive substances, government authorities have implemented complex regulatory control measures in a similar style to traditional export controls regulations.
Therefore, companies operating in this space must implement trade compliance program elements specifically for drug precursors, which acts as a parallel system of compliance operating with many of the same procedures, challenges, and control mechanisms but with different underlying regulatory frameworks. Companies also face reporting requirements for the export of these controlled substances, and are further obligated to identify transactional red flags related to suspicious transactions and exchange information with the competent national authorities. This is compulsory for scheduled substances (categories 1 to 4) and voluntary (but strongly recommended) for non-scheduled substances.[3] In this way, economic operators are the first line of defense against the diversion of drug precursors, as they are most closely associated to know their customers, as well as the products themselves.
United Nations:
The United Nations adopted the Convention against Illicit Traffic in Narcotic Drugs and Psychotropic Substances in December of 1988 in Vienna.
Notably, Article 12, paragraph 9 (a), requires each party to establish and maintain a system to monitor international trade in substances in Tables I and II to facilitate the identification of suspicious transactions.
Currently the convention lists 24 precursors under international control (Table I-higher controls, Table II- lower control), though as often the case in trade compliance, the list is not exhaustive.
International Narcotics Control Board:
In addition to the UN itself, the INCB is responsible for the Pre-Export Notification (PEN) Online System which enables easy exchange of information between competent national authorities on planned exports of precursor chemicals potentially used for the illicit manufacture or production of drugs, as required under the UN convention.
European Union:
Further to the EU Dual Use Regulation, the EU has implemented stringent regulations to prevent the misuse of pharmaceutical products:
Anti-torture regulations (Council Regulation (EC) No 1236/2005): Restricts the export of goods that could be used for capital punishment or torture.
Controlled Substances and Precursor Chemicals (Regulation (EC) No 273/2004: Monitors the trade of substances frequently diverted for illegal drug production.
For information on where an export license may become required, see the List of Countries by substances referred to into Article 10 of the Commission Delegated Regulation No 2015/1011 of 24.4.2015 here.
United States:
In addition to the EAR and ITAR (export controls of sensitive items), the US also implements a robust regulatory framework for controlling precursors.
U.S. Drug Enforcement Administration (DEA) List I and II chemicals: Control substances frequently diverted for illegal drug manufacturing.
The Controlled Substances Act (CSA): Regulates the manufacture and distribution of controlled substances.
Penalties and Consequences of Unauthorized Drug Precursor Export
Exporting drug precursors, without proper authorization carries severe legal, financial, and reputational risks for companies. Regulatory authorities such as DG TAXUD (EU), BFARM (Germany), Swissmedic (Switzerland), and DEA (U.S.) strictly monitor compliance with export controls.
Violations such as shipping without the correct export license, falsifying documents, or failing to report suspicious transactions can result in criminal charges, heavy fines, loss of export privileges, and even imprisonment for company executives. The below are some of the examples:
Germany: Violations under the German Narcotics Act (BtMG) or Foreign Trade and Payments Act (AWG) can lead to fines up to €500,000 or imprisonment up to 15 years (for severe cases).
Switzerland: Under the Swiss Narcotics Act (BetmG), unauthorized export of drug precursors can lead to fines up to CHF 1 million and imprisonment up to 20 years.
USA: Under the Controlled Substances Act (CSA) and Chemical Diversion and Trafficking Act (CDTA), unauthorized export of drug precursors is punishable by Fines up to $10 million for corporations, Prison sentences up to 30 years for responsible individuals, and permanent revocation of export licenses and blacklisting from international trade.
Core challenges in identifying risk of misuse
The INCB continues to emphasize the need for Governments and Economic Operators to strengthen their monitoring mechanisms for international trade, including scrutiny of the legitimate needs of importing countries, vigilance against possible red flags related to shipments that may indicate illicit activity and the need for the companies concerned to report suspicious orders and transactions to authorities.
However, like traditional sanctions and export controls compliance, keeping track of requirements for precursors faces similar challenges in terms of a rapidly changing regulatory environment, shifting patterns of diversion and circumvention, and unlike conventional export controls, where restricted end-users and sanctioned entities are listed (to some extent), the diversion of precursor chemicals frequently involves fragmented supply chains, shell companies, and misclassified shipments.
In addition to the precursor chemicals themselves, trade compliance teams must consider the related equipment needed for the illegal laboratory production of those controlled drugs, including but not limited to:
Beakers and glassware
Plastic or metal drums
Large capacity flasks
Electro-thermal heating mantles
Pressure reaction vessels
Pill presses/ tableting machines
Punches and dies
The operational burden therefore falls heavily on compliance teams, who must integrate product knowledge, transaction scrutiny, and cross-border regulatory intelligence into their workflows, while keeping up with the usual processes of red flag identification and due diligence.
Mr. Milton explains from his expereince in the indsutry that "Ensuring compliance with drug precursor regulations is not just about paperwork—it's about maintaining end-to-end visibility in the supply chain while balancing operational efficiency with strict legal requirements."
One of the primary hurdles is product identification as drug precursors often have legitimate industrial and pharmaceutical applications. This dual-use nature makes risk assessment far more nuanced, requiring compliance professionals to engage closely with chemists, suppliers, and customers to discern intent and application of the products. Further, the amounts necessary for these chemicals to have adverse impacts is relatively low, making even the smallest diversion risky.
Compounding the difficulty is the patchwork of global regulations. Unlike the relatively standardized frameworks governing export controls, drug precursor oversight varies widely across jurisdictions. A chemical flagged in the United States as a controlled precursor might pass unchecked through another country’s regulatory framework. For example, just in December of 2024, two fentanyl precursors (4-piperidone and 1-boc-4-piperidone) and two series of closely related designer precursors of amphetamine-type stimulants (16 substances in total) were added to Table I of the 1988 Convention.[1]
These rapid changes and inconsistencies often forces compliance teams to adopt a more proactive stance—such as developing robust internal monitoring system beyond mere regulatory requirements to implement best-in-class material tracking and due diligence measures. According to Mr. Milton, "Accurate material data is critical, as even minor discrepancies in chemical classification, labelling, or documentation can lead to regulatory violations, shipment delays, or severe penalties."
Despite these challenges, companies are finding innovative ways to stay ahead. Some firms are integrating analytics to flag suspicious transactions based on trade patterns and customer behavior. Others are investing in training programs that bring together compliance officers and scientific experts to deepen frontline defenses against illicit diversion. The key is not just to track regulations but to anticipate the evolving tactics of bad actors who will exploit any gap they can find.
For trade compliance professionals, the fight against drug precursor diversion may not come with the same high-profile headlines as sanctions enforcement. But in a world where illicit chemical flows fuel public health crises and transnational crime, their role is more vital than ever. The challenge is clear: staying ahead of diversion tactics requires more than just rule-following—it demands a constant recalibration of risk, intelligence, and operational vigilance in an ever-shifting landscape supported by innovation in the technology we use for compliance.
How SEIA Can help: Leveraging Data Analytics for Greater Transparency and Risk Mitigation
As organizations grapple with the operational complexity of precursor compliance, along with growing demands on export controls and sanctions program, SEIA empowers trade compliance with advanced data analytics solutions to gain greater transparency, risk identification, and actionable risk management insights.
HS Code Identification & Monitoring- For example, SEIA can support an organization in identifying the HS codes within their material masters that that may be subject to drug precursor controls, or creating custom tracking of items that contain those precursors, ensuring that organizations understand their obligations under varying international regulations.
Red Flag Identification- A key advantage of data analytics is also its ability to enhance red flag identification. By analyzing internal transactional and business data, SEIA can identify patterns in real time that may indicate potential illicit diversion or operational gaps that would allow for higher risk exposure. For example, SEIA can highly specific business partners that seem to have suspicious or inconsistent transaction patterns that may require more in-depth due diligence.
Diversion and Circumvention Trends- Beyond transactional monitoring, SEIA can also provide risk intelligence on precursor-specific transshipment routes. Like sanctions circumvention, precursors have their own countries of concern and routes identified for potential diversion. Therefore, trade compliance organizations in Pharma must also consider high-risk regions identified by organizations like the UNODC (United Nations Office on Drugs and Crime), or national authorities. By mapping historical shipment paths and cross-referencing them with these known high-risk jurisdictions, compliance teams can better anticipate where illicit activities may be taking place. This level of insight is critical for firms that operate across multiple borders, as it allows them to tailor their compliance strategies to focus on the most vulnerable segments of their supply chains based on their actual data reality.
Proactive Insights- Finally, SEIA can also support organizations in preventing risks, by identifying emerging trends before they become serious systemic risks. By integrating these insights into their risk management frameworks, companies can move beyond reactive compliance and adopt a more proactive, intelligence-driven approach for trade compliance, including the risk management of illegal drug precursor diversion.
In an era where trade compliance is increasingly data-driven, leveraging analytics is no longer a luxury—it’s a necessity. The challenge for organizations is not just to collect data, but to interpret and act on it effectively.
With the right analytical tools, like SEIA PERCEIVE, compliance professionals can gain the transparency they need to establish program assurance.
For more information on precursors:
For More information on how SEIA can support your organization:
Sources:
[3] INCB- Precursors 2024, chemicals and equipment frequently used in the illicit
manufacture of narcotic drugs and psychotropic substances https://unis.unvienna.org/unis/uploads/documents/2025-INCB/E-INCB-2024-4-ENG.pdf
[4] Drug Precursors Control, European Commission, https://taxation-customs.ec.europa.eu/customs-4/prohibitions-and-restrictions/drug-precursors-control_en
[5]https://www.incb.org/documents/PRECURSORS/TECHNICAL_REPORTS/2024/E/12_Extent_of_licit_trade_and_latest_trends_in_trafficking_in_precursors.pdf
[6] UNODC Research, Drung Market Trends, Booklet 4, https://www.unodc.org/res/wdr2022/MS/WDR22_Booklet_4.pdf
[7] ibid
[8] Wikipedia Defintions
[9] Statement by Dr. Viroj Sumyai, President, International Narcotics Control Board (INCB) on Item 9(b) Challenges and future work of the CND and WHO in the review of substances for possible scheduling recommendations, Sixty-second session of the Commission on Narcotic Drugs, Vienna, Austria, 18 March 2019.