In response to the opioid crisis, regulatory oversight has become more rigorous, particularly for manufacturers and distributors of controlled substances.

One such effort is the DEA Know Your Customer policy, designed to promote accountability and transparency throughout the supply chain. This initiative encourages DEA registrants to assess their business partners with greater scrutiny and helps reduce diversion and oversupply risks.

The DEA Know Your Customer policy plays a vital role in preventing suspicious orders of controlled substances by encouraging data-driven vigilance. This framework doesn’t just fulfill a regulatory requirement; it also strengthens public trust and reinforces corporate responsibility in an industry that affects millions of lives.

Understanding the Policy’s Foundation

The Controlled Substances Act requires manufacturers and distributors to maintain effective controls against the diversion of controlled substances. Nevertheless, over the years, regulators found that oversight mechanisms were not always enough to detect patterns of misuse until it was too late.

The DEA’s Know Your Customer policy emerged as part of a broader effort to improve compliance within the pharmaceutical supply chain. Instead of only focusing on quantities and delivery records, the policy requires registrants to assess who they’re selling to, how much they’re selling, and why that amount makes sense based on the customer’s profile.

Companies can better evaluate if an order appears reasonable or if it raises red flags by knowing their customers’ purchasing patterns, geographic location, and patient population.

The Role of ARCOS and Data Visibility

A key tool that supports the Know Your Customer initiative is ARCOS (Automation of Reports and Consolidated Orders System), a centralized database used by the DEA to track transactions involving Schedule I and II substances, as well as certain Schedule III drugs.

In 2018, the DEA introduced a feature in ARCOS that allowed distributors to view a six-month history of orders made by a specific customer, including details on how many other suppliers were involved. This expanded access provided a critical layer of visibility, which allows companies to avoid unintentionally flooding a pharmacy or clinic with redundant supply.

A year later, ARCOS received another upgrade following the SUPPORT Act. Users could now download data showing the total quantity of controlled substances ordered, both by volume and dosage units, along with the number of registered suppliers.

This made it easier for manufacturers and distributors to compare an individual customer’s purchasing activity to broader trends in their area.

What “Knowing Your Customer” Really Means

Knowing your customer goes beyond just verifying registration numbers and licenses. The DEA expects registrants to assess each buyer’s order history, business model, location demographics, and potential red flags.

For example, a distributor selling large quantities of oxycodone to a pharmacy located in a small town may need to investigate whether those quantities align with local medical demand. If the same pharmacy also orders from multiple other suppliers in high volume, the concern increases.

The DEA doesn’t specify a fixed volume that qualifies as suspicious. Instead, registrants are expected to develop and follow internal policies and procedures that reflect their business structure and risk profile. These systems should include clear documentation, escalation processes, and defined roles for compliance review.

Key Red Flags to Watch For

The DEA Know Your Customer policy puts the onus on registrants to detect and act on red flags. These may include:

• Unusual order sizes that are inconsistent with past patterns or local demographics
• Sudden spikes in orders from new customers without clear justification
• Multiple orders from one customer through different suppliers in a short timeframe
• High volumes of controlled substances in areas with low population density

In some cases, even a single red flag may be worth investigating. In others, it may take a combination of indicators to trigger a formal review or suspension of supply.

Legal Risks of Noncompliance

Failing to follow the Know Your Customer policy can lead to serious legal consequences. Distributors and manufacturers have faced multi-million-dollar settlements and even the loss of their DEA registrations due to allegations of failing to monitor and report suspicious orders.

Regulatory agencies expect businesses to take responsibility for the risks they manage. A lack of awareness does not excuse inaction, especially when the company has access to the information and tools needed to detect the issue.

Organizations that overlook warning signs or fail to act may still face serious consequences. That’s why taking a proactive stance, backed by strong internal compliance procedures, is important. Understanding your customer isn’t just a smart strategy; it’s a requirement under the law.

Strengthening Internal Compliance Programs

A successful DEA compliance strategy begins with a comprehensive internal policy that incorporates Know Your Customer principles at every stage. This includes:

• Training employees to recognize potential red flags
• Setting up standard operating procedures for due diligence
• Using ARCOS and other data platforms to validate purchasing trends
• Performing regular audits and risk assessments
• Documenting all actions and decisions taken in response to suspicious activity

Collaboration Within the Industry

A major advantage of the Know Your Customer (KYC) model is its ability to foster collaboration – not only between businesses and regulators, but also across the industry itself.

For example, by comparing data across multiple suppliers, companies can spot outliers and better understand supply dynamics. This kind of transparency is key to stopping the accumulation of excessive stock in a single location, which can increase the risk of diversion.

Additionally, industry associations and compliance networks offer guidance, peer benchmarking, and best practices for meeting the DEA’s expectations. These collaborations help firms stay ahead of new developments and build a stronger, more unified response to the opioid epidemic.

The Role of Technology in Compliance

Modern compliance is deeply tied to technology. From data analytics to automated reporting, digital tools make it easier to monitor trends, detect anomalies, and respond quickly.

Many firms now use custom dashboards that flag orders exceeding specific thresholds or highlight changes in purchasing patterns. Others integrate predictive algorithms to assess diversion risk based on historical behavior and regional benchmarks.

These innovations help reduce the risk of human error and allow compliance programs to expand efficiently, even as regulatory expectations continue to grow.

How It Helps Reduce Oversupply and Diversion

At its core, the DEA’s Know Your Customer policy emphasizes accountability. It gives manufacturers and distributors a clear role in safeguarding the supply chain by monitoring behavior, flagging irregularities, and halting shipments when something doesn’t look right.

This proactive approach can have a meaningful impact. Identifying high-risk customers early allows companies to intervene before excess supply moves downstream into vulnerable communities. Strong due diligence not only reduces diversion risk but also lowers the likelihood of facing costly investigations, regulatory penalties, or reputational damage.

The DEA Know Your Customer policy is more than a box-ticking requirement. It’s a proactive strategy that helps protect public health, reduce legal risk, and build long-term credibility. By embracing transparency, using data intelligently, and staying responsive to evolving trends, companies can make meaningful contributions to the fight against opioid misuse.

At GTC Consulting, we help clients navigate the complexities of DEA compliance with confidence. From policy development to mock inspections and litigation support, our experience helps businesses operate responsibly and effectively in this high-stakes space.

Visit gtcconsults.com to learn how we can support your team’s compliance journey.