[Federal Register Volume 79, Number 170 (Wednesday, September 3, 2014)]
[Notices]
[Pages 52365-52371]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2014-20884]
-----------------------------------------------------------------------
DEPARTMENT OF LABOR
Employee Benefits Security Administration
[Application No. D-11819]
Notice of Proposed Exemption involving Credit Suisse AG
(hereinafter, either Credit Suisse AG or the Applicant) Located in
Zurich, Switzerland
AGENCY: Employee Benefits Security Administration, U.S. Department of
Labor.
ACTION: Notice of Proposed Exemption
-----------------------------------------------------------------------
SUMMARY: This document contains a notice of pendency before the
Department of Labor (the Department) of a proposed individual exemption
from certain prohibited transaction restrictions of the Employee
Retirement Income Security Act of 1974, as amended (ERISA or the Act),
and the Internal Revenue Code of 1986, as amended (the Code). The
proposed exemption, if granted, would affect the ability of certain
entities with specified relationships to Credit Suisse AG to continue
to rely upon the relief provided by Prohibited Transaction Class
Exemption 84-14.
DATES: Effective Date: If granted, this proposed exemption will be
effective as of the date a judgment of conviction against Credit Suisse
AG for one count of conspiracy to violate section 7206(2) of the
Internal Revenue Code in violation of Title 18, United States Code,
Section 371 is entered in the District Court for the Eastern District
of Virginia in Case Number 1:14-cr-188-RBS.
DATES: Written comments and requests for a public hearing on the
proposed exemption should be submitted to the Department within 35 days
from the date of publication of this Federal Register Notice.
ADDRESSES: Comments and requests for a hearing should state: (1) The
name, address, and telephone number of the person making the comment or
request, and (2) the nature of the person's interest in the proposed
exemption and the manner in which the person would be adversely
affected by the exemption, if granted. A request for a hearing must
also state the issues to be addressed and include a general description
of the evidence to be presented at the hearing. All written comments
and requests for a public hearing concerning the proposed exemption
should be sent to the Office of Exemption Determinations, Employee
Benefits Security Administration, Room N-5700, U.S. Department of
Labor, 200 Constitution Avenue NW., Washington DC 20210, Attention:
Application No. D-11819. Interested persons are also invited to submit
comments and/or hearing requests to EBSA via email or FAX. Any such
comments or requests should be sent either by email to:
[email protected], or by FAX to (202) 219-0204 by the end of the
scheduled comment period. The application for exemption and the
comments received will be available for public inspection in the Public
Documents Room of the Employee Benefits Security Administration, U.S.
Department of Labor, Room N-1515, 200 Constitution Avenue NW.,
Washington, DC 20210. Comments and hearing requests will also be
available online at www.regulations.gov and www.dol.gov/ebsa, at no
charge.
Warning: If you submit written comments or hearing requests, do not
include any personally identifiable information (such as name, address,
or other contact information) or confidential business information that
you do not want publicly disclosed. All comments and hearing requests
may be posted on the Internet and can be retrieved by most Internet
search engines.
FOR FURTHER INFORMATION CONTACT: Erin S. Hesse, Office of Exemption
Determinations, Employee Benefits Security Administration, U.S.
Department of Labor, telephone (202) 693-8546. (This is not a toll-free
number).
SUPPLEMENTARY INFORMATION: If the proposed exemption in this document
is granted, any entity with a specified relationship to Credit Suisse
AG will not be precluded from relying on the relief provided by
Prohibited Transaction Class Exemption 84-14 (49 FR 9494 (March 13,
1984), as corrected at 50 FR 41430 (October 10, 1985), as amended at 70
FR 49305 (August 23, 2005), and as amended at 75 FR 38837 (July 6,
2010)), notwithstanding a judgment of conviction against Credit Suisse
AG for one count of conspiracy to violate section 7206(2) of the
Internal Revenue Code in violation of Title 18, United States Code,
Section 371, to be entered in the District Court for the Eastern
District of Virginia in Case Number 1:14-cr-188-RBS. The proposed
exemption has been requested by Credit Suisse AG pursuant to section
408(a) of the Act and section 4975(c)(2) of the Code, and in accordance
with the procedures set forth in 29 CFR Part 2570, Subpart B (76 FR
66637, 66644, October 27, 2011). Effective December 31, 1978, section
102 of the Reorganization Plan No. 4 of 1978, 5 U.S.C. App. 1 (1996),
transferred the authority of the Secretary of the Treasury to issue
administrative exemptions under section 4975(c)(2) of the Code to the
Secretary of Labor. Accordingly, this notice of proposed exemption is
being issued solely by the Department.
Summary of Facts and Representations \1\
---------------------------------------------------------------------------
\1\ The Summary of Facts and Representations is based on the
Applicant's representations and does not reflect the views of the
Department, unless indicated otherwise.
---------------------------------------------------------------------------
Background
1. The Applicant represents that Credit Suisse Group AG (Credit
Suisse Group) is a publicly-traded company organized in Switzerland and
headquartered in Zurich. As of December 31, 2013, Credit Suisse Group
had assets of approximately $980.1 billion, including approximately
$47.3 billion in shareholders' equity. Credit Suisse Group owns a 100%
interest in Credit Suisse AG (i.e., the Applicant), which operates as a
bank, with all related banking, finance, consultancy, service, and
trading activities in Switzerland and abroad.
2. The Applicant further represents that it has financial
relationships with a wide range of entities that may act as ``qualified
professional asset managers'' (QPAMs), in reliance on the exemptive
relief provided in Prohibited
[[Page 52366]]
Transaction Class Exemption (PTE) 84-14.\2\
---------------------------------------------------------------------------
\2\ 49 FR 9494 (March 13, 1984), as corrected at 50 FR 41430
(October 10, 1985), as amended at 70 FR 49305 (August 23, 2005), and
as amended at 75 FR 38837 (July 6, 2010).
---------------------------------------------------------------------------
PTE 84-14 provides a conditional exemption for certain transactions
between a party in interest with respect to an employee benefit plan
and an investment fund (as defined in Section VI(b) of PTE 84-14) in
which the plan has an interest, where the investment fund is managed by
a QPAM. One of the conditions for exemptive relief in PTE 84-14,
Section I(g), precludes an entity that may otherwise meet the
definition of a QPAM provided in Section VI(a) of PTE 84-14 from
relying on the relief provided by the class exemption if that entity or
an affiliate thereof or any owner, direct or indirect, of a 5 percent
or more interest in the QPAM has, within 10 years immediately preceding
the transaction, been either convicted or released from imprisonment,
whichever is later, as a result of certain specified criminal activity
described in that section. This condition was included in PTE 84-14, in
part, based on the expectation that a QPAM, and those who may be in a
position to influence its policies, maintain a high standard of
integrity.\3\
---------------------------------------------------------------------------
\3\ See 47 FR 56945, 56947 (December 21, 1982).
---------------------------------------------------------------------------
3. The Applicant represents that it is an affiliate (as defined in
Section VI(d) of PTE 84-14) of Credit Suisse Asset Management LLC,
Credit Suisse Securities (USA) LLC, CSAM Limited, and a number of other
entities that act as QPAMs and manage over $2 billion in assets
(collectively, the Credit Suisse Affiliated QPAMs). The Applicant
represents that it also owns a five percent or more interest in certain
other entities (the Credit Suisse Related QPAMs) that may provide
investment management services to plans in reliance on the exemptive
relief provided in PTE 84-14, but are not affiliates (as defined in
Section VI(d) of PTE 84-14) of Credit Suisse AG. As noted above in
paragraph two, Section I(g) of PTE 84-14 would also preclude the Credit
Suisse Related QPAMs from relying on the relief provided by PTE 84-14,
notwithstanding the fact that they are not affiliated with Credit
Suisse AG.
4. The Applicant notes that, on May 19, 2014, the Tax Division of
the United States Department of Justice and the U.S. Attorney's Office
for the Eastern District of Virginia filed a one-count criminal
information (the Information) in the District Court for the Eastern
District of Virginia (the District Court) \4\ charging Credit Suisse AG
with a conspiracy to violate section 7206(2) of the Code in violation
of Title 18, United States Code, Section 371.\5\ The Information
identifies the Applicant and its subsidiaries, Credit Suisse Fides and
Clariden Leu Ltd., of willfully aiding, assisting in, procuring,
counseling, and advising the preparation and presentation of false
income tax returns and other documents to the Internal Revenue Service
of the Treasury Department (IRS), for decades, prior to and through
approximately 2009.
---------------------------------------------------------------------------
\4\ United States of America v. Credit Suisse AG, Case Number
1:14-cr-188-RBS.
\5\ Section 7206(2) of the Code prohibits willfully aiding,
assisting, procuring, counseling, or advising the preparation or
presentation of false income tax returns. Section 371 of Title 18 of
the United States Code generally prohibits two or more persons from
conspiring either to commit any offense against the United States or
to defraud the United States.
---------------------------------------------------------------------------
5. According to the Statement of Facts filed in the criminal case
(the Statement of Facts), for decades prior to and through
approximately 2009, Credit Suisse AG operated an illegal cross-border
banking business that knowingly and willfully aided and assisted
thousands of U.S. clients in opening and maintaining undeclared
accounts \6\ concealing their offshore assets and income from the IRS.
Private bankers employed by Credit Suisse AG (referred to as
Relationship Managers or RMs) served as the primary contact for U.S.
clients with undeclared accounts at Credit Suisse AG. Credit Suisse AG
used a variety of means to assist U.S. clients in concealing their
undeclared accounts, including by: Assisting clients in using sham
entities as nominee beneficial owners of the undeclared accounts;
soliciting IRS forms that falsely stated under penalty of perjury that
the sham entities beneficially owned the assets in the accounts;
failing to maintain in the United States records related to the
accounts; destroying account records sent to the United States for
client review; using Credit Suisse managers and employees as
unregistered investment advisors on undeclared accounts; facilitating
withdrawals of funds from undeclared accounts by either providing hand-
delivered cash in the United States or using Credit Suisse's
correspondent bank accounts in the United States; structuring transfers
of funds to evade currency transaction reporting requirements; and
providing offshore credit and debit cards to repatriate funds in the
undeclared accounts.
---------------------------------------------------------------------------
\6\ An ``undeclared account'' is a financial account owned by an
individual subject to U.S. tax and maintained in a foreign country
that has not been reported by the individual account owner to the
U.S. government on an income tax return and a Report of Foreign Bank
and Financial Accounts (FBAR). U.S. citizens, resident aliens, and
legal permanent residents have an obligation to report all income
earned from foreign bank accounts on their tax returns and to pay
the taxes due on that income.
---------------------------------------------------------------------------
6. According to the Statement of Facts, Credit Suisse AG made a
number of ineffectual attempts to consolidate these U.S. clients'
accounts in Credit Suisse AG business entities that complied with U.S.
law. For instance, starting in or about 2009, Credit Suisse AG engaged
in a flawed process of verifying tax compliance of U.S. accounts in
order to allow these accounts to remain at Credit Suisse AG. In
December 2010, the Tax Division of the DOJ informed Credit Suisse AG
that it had begun a criminal investigation of Credit Suisse AG that had
uncovered evidence of tax law violations. Although Credit Suisse AG had
either transferred or terminated the majority of its relationships with
these U.S. clients by approximately 2010, Credit Suisse AG continued to
identify U.S. customer accounts for closure until in or about 2013.
7. On May 19, 2014, pursuant to a plea agreement (the Plea
Agreement), the Applicant entered a plea of guilty for assisting U.S.
citizens in federal income tax evasion. The Applicant represents that
it expects the District Court to enter a judgment of conviction (the
Conviction) against Credit Suisse AG that will require remedies that
are materially the same as set forth in the Plea Agreement. The
Conviction is scheduled to be entered on or after November 1, 2014.
Failure To Comply With Section I(g) of PTE 84-14 and Proposed Relief
8. As noted above, Section I(g) of PTE 84-14 expressly identifies a
criminal conviction of a QPAM, an affiliate thereof, or any owner,
direct or indirect, of a 5 percent or more interest in a QPAM, for
income tax evasion as precluding the QPAM from relying on the relief
set forth in the class exemption. Pursuant to that section, once the
Conviction is entered, the Credit Suisse Affiliated QPAMs and Credit
Suisse Related QPAMs will no longer be able to rely on PTE 84-14. The
Applicant is seeking an individual exemption that would permit the
Credit Suisse Affiliated QPAMs and the Credit Suisse Related QPAMs to
continue to rely on PTE 84-14, notwithstanding the Conviction, to the
extent that such QPAMs meet certain additional conditions, as proposed
herein.
[[Page 52367]]
Statutory Findings--In the Interest of Affected Plans and IRAs
9. The Applicant submits that the requested exemption would be in
the interest of affected plans, those described in section 3(3) of
ERISA (ERISA-covered plans) or section 4975(e)(1) of the Code (IRAs).
In this regard, the Applicant states that the exemption would allow
ERISA-covered plans and IRAs managed by the Credit Suisse Affiliated
QPAMs and Credit Suisse Related QPAMs to avoid the costs or losses that
would arise if these QPAMs were suddenly unable to rely on the relief
afforded by PTE 84-14 after the Conviction. The Applicant submits that
if the Credit Suisse Affiliated QPAMs lose the relief in PTE 84-14,
three main investment strategies used for ERISA-covered plans and IRAs
would be impacted. The first strategy, Credit, seeks to invest in long-
term fixed income opportunities by investing in syndicated bank loans,
high yield bonds, and structured asset backed securities that trade
over-the-counter in the primary and secondary markets. This strategy
covers five ERISA-covered plans and pooled funds. About half of the
strategy involves loans engaged in by Credit Suisse Affiliated QPAMs in
reliance of the relief provided by PTE 84-14. The second strategy,
Commodities, seeks to replicate the return of certain commodities
indices by investing in futures, structured notes, total return swaps,
and other derivatives. This strategy covers eight ERISA-covered plans
and pooled funds. The third strategy, Liquid Alternative Beta (LAB),
seeks to replicate the performance of hedge fund sectors such as long/
short equity, event driven, and managed futures using liquid tradable
instruments. The LAB strategy invests in ADRs, equity securities, ETFs,
futures, forwards, and options. This strategy covers four ERISA-covered
plans.
10. The Applicant represents that the cost of terminating an
investment is generally the difference between the bid price and the
ask price for any particular investment. Furthermore, some investments
are more liquid than others (e.g., Treasury bonds are more liquid than
foreign sovereign bonds and equities are more liquid than swaps).
According to the Applicant, the strategies mentioned above (Credit,
Commodities, and LAB) tend to be less liquid than certain other
strategies and, thus, the cost of terminating an investment therein
would be significantly higher than, for example, liquidating a large
cap equity portfolio. The Applicant estimates that the cost to ERISA-
covered plans and IRAs of transitioning from Credit Suisse Affiliated
QPAMs to other unrelated managers in each of the three strategies is as
follows: LAB--about eleven basis points; Credit--under two basis points
to liquidate the assets but because of the bid/ask spread, as much as
fifty basis points to reinvest the assets; and Commodities--three to
five basis points. Based on the amount of assets in each strategy, the
Applicant estimates that the total cost of liquidating would be about
$450,000. However, the Applicant notes that the affected ERISA-covered
plans and IRAs would need to reinvest in the market, so the real cost
would potentially be much higher. The Applicant additionally represents
that the Credit Suisse Affiliated QPAMs do not impose any charges or
penalties on ERISA-covered plans or IRAs for terminating or withdrawing
from any agreements for the provision of asset management or other
services by the Credit Suisse Affiliated QPAMs.
11. The Applicant states further that the proposed exemption would
enable ERISA-covered plans and IRAs managed by the Credit Suisse
Affiliated QPAMs and Credit Suisse Related QPAMs to continue with the
current investment strategies of their chosen QPAM. The Applicant
suggests that any ERISA-covered plan or IRA that is forced to move to a
new investment manager could incur transition costs, including costs
associated with identifying an appropriate investment manager to act as
a QPAM.
Statutory Findings--Protective of Affected Plans and IRAs
12. The Applicant submits that the proposed exemption, if granted,
would be protective of affected ERISA-covered plans and IRAs. The
Applicant represents that the criminal conduct of Credit Suisse AG that
is the subject of the Conviction did not directly or indirectly involve
the assets of any ERISA-covered plan or IRA. The Applicant also
represents that neither the Credit Suisse Affiliated QPAMs nor the
Credit Suisse Related QPAMs (including the officers, directors,
employees, or agents of such QPAMs) participated in the criminal
conduct that forms the basis for the Conviction. Additionally, the
Applicant represents that neither the Credit Suisse Affiliated QPAMs
nor the Credit Suisse Related QPAMs directly received any compensation
in connection with such conduct. Finally, the Applicant states that
Credit Suisse AG, the entity to be convicted, did not provide any
fiduciary services to ERISA-covered plans or IRAs, except in connection
with certain securities lending services of the New York Branch of
Credit Suisse AG, or act as a QPAM for any ERISA-covered plan or IRA.
Credit Suisse Affiliated QPAMs. The Applicant explains that Credit
Suisse Affiliated QPAMs are part of the Asset Management business in
the U.S. and the U.K., whereas the Relationship Managers involved in
the criminal conduct worked for Credit Suisse AG or other non-U.S.
affiliates in Switzerland. Furthermore, the Applicant notes that Credit
Suisse Affiliated QPAMs maintain separate registrations, books and
records, and accounts from the Relationship Managers in Switzerland.
Additionally, other than research and other publicly available
information, which is provided to many investment managers, and which
Credit Suisse Affiliated QPAMs receive from hundreds of analysts and
investment banks, asset management decisions and asset management
operations of Credit Suisse Affiliated QPAMs are independent of (i.e.,
not influenced by) Credit Suisse AG's management and business
activities. The Applicant represents that the trading decisions and
investment strategy of Credit Suisse Affiliated QPAMs for their clients
is not shared with Credit Suisse AG employees outside of the asset
management division, nor does the asset management division consult
with other parts of the Credit Suisse AG organization prior to making
investment decisions on behalf of its clients.
Credit Suisse Related QPAMs. The Applicant represents that Credit
Suisse AG's relationships to many of the entities that may be
considered Credit Suisse Related QPAMs is so minimal that Credit Suisse
AG does not know if such entities are acting as QPAMs in reliance on
the relief in PTE 84-14. Furthermore, the Applicant represents that any
such Credit Suisse Related QPAMs maintain their own information and
technology infrastructure and do not share office space or employees
with Credit Suisse AG. According to the Applicant, such Credit Suisse
Related QPAMs are entirely separate and distinct from Credit Suisse AG.
Furthermore, the Applicant states that no employee of Credit Suisse AG
sits on the board of directors of any Credit Suisse Related QPAM. The
Applicant explains that Credit Suisse AG does not have the power to
exercise a controlling influence over the management or policies of
such QPAMs. Additionally, the Applicant's investments in such QPAMs are
intended to be, and are, passive investments. The Applicant adds that
Credit Suisse AG does not have the power to exercise a controlling
[[Page 52368]]
influence over the investment management decisions of these managers.
Therefore, the Applicant maintains that Credit Suisse AG has no
``control'' over such Credit Suisse Related QPAMs as that term is
defined in Section VI(e) of PTE 84-14.\7\
---------------------------------------------------------------------------
\7\ Section VI(e) of PTE 84-14 defines the term ``control'' as
the power to exercise a controlling influence over the management or
policies of a person other than an individual.
---------------------------------------------------------------------------
13. The Applicant represents that if this proposed exemption is
granted, Credit Suisse Affiliated QPAMs will not use their authority or
influence to direct an investment fund (as defined in Section VI(b) of
PTE 84-14) managed by a Credit Suisse Affiliated QPAM to enter into any
transaction with Credit Suisse AG or engage Credit Suisse AG to provide
additional services, for a fee, to the investment fund regardless of
whether such transactions or services may otherwise be within the scope
of relief provided by an administrative or statutory exemption.
Additionally, the Applicant represents that any employee accused of
engaging in the criminal conduct that underlies the Conviction will not
transact business on behalf of any investment fund managed by the
Credit Suisse Affiliated QPAMs.
14. The Department notes that the proposed exemption, if granted,
provides additional protection to affected ERISA-covered plans and IRAs
because it requires a prudently selected, independent auditor, who has
appropriate technical training and proficiency with Title I of ERISA,
to evaluate the adequacy of and compliance with the policy and training
requirements described below. The first of the audits must be completed
no later than twelve (12) months after a final exemption for the
covered transactions is granted in the Federal Register and must cover
the first six-month period that begins on the date a final exemption is
granted in the Federal Register; all subsequent audits must cover the
following corresponding twelve-month periods and be completed no later
than 6 months after the period to which it applies. The auditor shall
determine whether Credit Suisse AG and the Credit Suisse Affiliated
QPAMs have developed, implemented, maintained, and followed written
policies (the Policies) requiring and designed to ensure that: (i) The
asset management decisions and asset management operations of the
Credit Suisse Affiliated QPAMs are conducted independently of Credit
Suisse AG's management and business activities; (ii) Credit Suisse AG
and the Credit Suisse Affiliated QPAMs fully comply with ERISA's
fiduciary duties and prohibited transaction provisions, and do not
knowingly participate in any violations of these duties and provisions;
(iii) Credit Suisse AG and the Credit Suisse Affiliated QPAMs do not
knowingly participate in any other person's violation of ERISA, the
Code, or other federal, state, or local law; (iv) any filings or
statements made to federal, state, or local government are accurate and
complete; (v) Credit Suisse AG and the Credit Suisse Affiliated QPAMs
do not make material misrepresentations or omit material information in
their communications with federal, state, or local government, or their
ERISA-covered plan and IRA clients; (vi) Credit Suisse AG and the
Credit Suisse Affiliated QPAMs comply with the terms of this exemption;
and (vii) any violations of or failure to comply with items (ii)
through (vi) are promptly reported in writing to appropriate corporate
officers, the head of Credit Suisse U.S. Asset Management Compliance,
the General Counsel for Credit Suisse Asset Management, the independent
auditor responsible for reviewing compliance with the Policies, and a
non-QPAM fiduciary of any affected ERISA-covered plan or IRA.
15. The independent auditor shall also determine whether Credit
Suisse AG and the Credit Suisse Affiliated QPAMs have developed a
training program (the Training) for Credit Suisse AG and Credit Suisse
Affiliated QPAM personnel covering, at a minimum, the Policies, ERISA
compliance, the consequences for not complying with the conditions of
this proposed exemption, if granted, (including the loss of the
exemptive relief provided herein), prompt reporting of wrongdoing, and
ethical conduct. The auditor shall also determine whether Credit Suisse
AG and the Credit Suisse Affiliated QPAMs are operationally compliant
with the Policies and Training.
16. The auditor shall provide a written report (the Audit Report),
upon completion of each audit that it conducts, to Credit Suisse AG and
the Credit Suisse Affiliated QPAMs that describes the auditor's
determinations as required under this proposed exemption, if granted,
and the steps performed by the auditor during the course of the
auditor's examinations. The Report will also include the auditor's
determinations with regards to the adequacy of the Policies and the
Training and any recommendations with respect to strengthening the
Policies and Training, and any instances of Credit Suisse AG's or the
Credit Suisse Affiliated QPAMs' noncompliance with the written Policies
and Training described above. Any determinations made by the auditor
regarding the adequacy of the Policies and Training and the auditor's
recommendations (if any) with respect to strengthening the Policies and
Training shall be promptly addressed by Credit Suisse AG and the Credit
Suisse Affiliated QPAMs, and any actions taken by Credit Suisse AG or
the Credit Suisse Affiliated QPAMs to address such recommendations
shall be included in an addendum to the Audit Report.
17. The auditor shall notify Credit Suisse AG and the Credit Suisse
Affiliated QPAMs of any instances of noncompliance identified by the
auditor within five (5) business days after such noncompliance is
identified by the auditor, regardless of whether the audit has been
completed as of that date. Credit Suisse AG or a Credit Suisse
Affiliated QPAM shall provide written notice to the Department's Office
of Exemption Determinations (OED) of any instances of noncompliance
reviewed by the auditor within ten (10) business days after such notice
is received from the auditor. Upon request, the auditor shall provide
OED with all of the relevant workpapers reflecting any instances of
noncompliance. The workpapers shall identify whether and to what extent
the assets of ERISA-covered plans or IRAs were involved in the
instance(s) of noncompliance and an explanation of any corrective
actions taken by Credit Suisse AG.
18. An executive officer of Credit Suisse AG will certify in
writing, under penalty of perjury, that such officer has reviewed each
Audit Report and this exemption, addressed any inadequacies identified
in the Audit Report, and determined that the Policies and Training in
effect at the time of signing are adequate to ensure compliance with
the conditions of this exemption and with the applicable provisions of
ERISA and the Code. Similarly, an executive officer of each Credit
Suisse Affiliated QPAM will certify in writing, under penalty of
perjury, that such officer has reviewed each Audit Report and this
exemption, addressed any inadequacies identified in the Audit Report,
and determined that the Policies and Training in effect at the time of
signing are adequate to ensure compliance with the conditions of this
exemption and with the applicable provisions of ERISA and the Code.
Finally, the Applicant provides each certified Audit Report to OED no
later than 30 days following its completion and Credit Suisse AG and
the Credit Suisse Affiliated QPAMs make the Audit Report
unconditionally
[[Page 52369]]
available for examination by any duly authorized employee or
representative of the Department, or other relevant regulators, and any
fiduciary of an ERISA-covered plan or IRA, the assets of which are
managed by a Credit Suisse Affiliated QPAM.
19. The Department notes that the proposed exemption, if granted,
will also be protective of plans and their participants and
beneficiaries, because, in any agreements with ERISA-covered plans or
IRAs for the provision of asset management or other services, Credit
Suisse AG and the Credit Suisse Affiliated QPAMs will contain
additional protective covenants described herein. In this regard, in
such agreements, Credit Suisse AG or a Credit Suisse Affiliated QPAM,
as applicable, must agree to comply with ERISA and to refrain from
engaging in prohibited transactions; must not purport to waive, limit,
or qualify the liability of Credit Suisse AG or the Credit Suisse
Affiliated QPAMs for violating ERISA or engaging in prohibited
transactions; must not require the ERISA-covered plans or IRAs (or
sponsors of such ERISA-covered plans or IRAs) to indemnify Credit
Suisse AG or the Credit Suisse Affiliated QPAMs for violating ERISA or
engaging in prohibited transactions; must not restrict the ability of
such ERISA-covered plans or IRAs to terminate or withdraw from their
arrangements with Credit Suisse AG or the Credit Suisse Affiliated
QPAMs; and must not impose any fees, penalties, or charges for such
termination or withdrawal.
20. The Department also notes that a Credit Suisse Affiliated QPAM
will not fail to meet the terms of this proposed exemption, if granted,
solely because a Credit Suisse Related QPAM fails to satisfy a
condition for relief under this exemption. Additionally, a Credit
Suisse Related QPAM will not fail to meet the terms of this proposed
exemption, if granted, solely because Credit Suisse AG, a Credit Suisse
Affiliated QPAM, or a different Credit Suisse Related QPAM fails to
satisfy a condition for relief under this exemption.
21. The Applicant represents that if a final exemption is granted
in the Federal Register, Credit Suisse AG and the Credit Suisse
Affiliated QPAMs will maintain records necessary to demonstrate that
the conditions of this exemption have been met for six (6) years
following the date of any transactions for which Credit Suisse
Affiliated QPAMs rely upon the relief in the exemption.
22. The Applicant represents further that, if this proposed
exemption is granted, Credit Suisse AG will provide to (1) each sponsor
of an ERISA-covered plan and each beneficial owner of an IRA invested
in an investment fund managed by a Credit Suisse Affiliated QPAM, or
the sponsor of an investment fund in any case where a Credit Suisse
Affiliated QPAM acts only as a sub-advisor to the investment fund; (2)
each entity that may be a Credit Suisse Related QPAM; and (3) each
ERISA-covered plan for which the New York Branch of Credit Suisse AG
provides fiduciary securities lending services, a notice of the
proposed exemption, along with a separate summary of the facts that led
to the Conviction, which has been submitted to the Department, and a
prominently displayed statement that the Conviction results in a
failure to meet a condition in PTE 84-14.
23. Finally, the Applicant represents that the proposed exemption
will protect the interests of affected ERISA-covered Plans and IRAs
because it would allow the Credit Suisse Affiliated QPAMs to engage in
transactions described in PTE 84-14 only to the extent that all of the
longstanding conditions set forth in PTE 84-14 (except for Section
I(g), as a result of the Conviction) are fully met.
Statutory Findings--Administratively Feasible
24. The Applicant represents that the requested exemption is
administratively feasible because it does not require any monitoring by
the Department but relies on an independent auditor to determine that
Credit Suisse AG's and the Affiliated QPAMs' compliance policies, and
the conditions for the exemption, are being followed. Furthermore,
compliance with other sections of PTE 84-14 has been determined to be
administratively feasible by the Department in many other similar
cases.
Notice to Interested Persons
Notice of the proposed exemption (the Notice) will be provided to
all interested persons within five (5) days of publication of the
Notice in the Federal Register. The Notice will be provided to all
interested persons in the manner agreed upon by the Applicant and the
Department. Such notification will contain a copy of the Notice, as
published in the Federal Register, and a supplemental statement, as
required, pursuant to 29 CFR 2570.43(a)(2). The supplemental statement
will inform all interested persons of their right to comment on and to
request a hearing with respect to the pending exemption. All written
comments and/or requests for a hearing must be received by the
Department within thirty-five (35) days of the publication of the
Notice in the Federal Register.
All comments will be made available to the public. Warning: Do not
include any personally identifiable information (such as name, address,
or other contact information) or confidential business information that
you do not want publicly disclosed. All comments may be posted on the
Internet and can be retrieved by most Internet search engines.
General Information
The attention of interested persons is directed to the following:
(1) The fact that a transaction is the subject of an exemption
under section 408(a) of the Act and/or section 4975(c)(2) of the Code
does not relieve a fiduciary or other party in interest or disqualified
person from certain other provisions of the Act and/or the Code,
including any prohibited transaction provisions to which the exemption
does not apply and the general fiduciary responsibility provisions of
section 404 of the Act, which, among other things, require a fiduciary
to discharge his duties respecting the plan solely in the interest of
the participants and beneficiaries of the plan and in a prudent fashion
in accordance with section 404(a)(1)(B) of the Act; nor does it affect
the requirement of section 401(a) of the Code that the plan must
operate for the exclusive benefit of the employees of the employer
maintaining the plan and their beneficiaries;
(2) Before an exemption may be granted under section 408(a) of the
Act and/or section 4975(c)(2) of the Code, the Department must find
that the exemption is administratively feasible, in the interests of
the plan and of its participants and beneficiaries, and protective of
the rights of participants and beneficiaries of the plan;
(3) The proposed exemption, if granted, will be supplemental to,
and not in derogation of, any other provisions of the Act and/or the
Code, including statutory or administrative exemptions and transitional
rules. Furthermore, the fact that a transaction is subject to an
administrative or statutory exemption is not dispositive of whether the
transaction is in fact a prohibited transaction; and
(4) The proposed exemption, if granted, will be subject to the
express condition that the material facts and representations contained
in the application are true and complete, and that the application
accurately describes all material terms of the transaction which is the
subject of the exemption.
[[Page 52370]]
Proposed Exemption
Based on the foregoing facts and representations submitted by the
Applicant, the Department is considering granting an exemption under
the authority of section 408(a) of the Employee Retirement Income
Security Act of 1974, as amended (ERISA), and section 4975(c)(2) of the
Internal Revenue Code of 1986, as amended (the Code), and in accordance
with the procedures set forth in 29 CFR Part 2570, Subpart B (76 FR
66637, 66644, October 27, 2011).\8\
---------------------------------------------------------------------------
\8\ For purposes of this proposed exemption, references to
section 406 of ERISA should be read to refer as well to the
corresponding provisions of section 4975 of the Code.
---------------------------------------------------------------------------
Section I: Covered Transactions
If the proposed exemption is granted, the Credit Suisse Affiliated
QPAMs and the Credit Suisse Related QPAMs shall not be precluded from
relying on the relief provided by Prohibited Transaction Class
Exemption (PTE) 84-14 \9\ notwithstanding the Conviction (as defined in
Section II(c),\10\ provided the following conditions are satisfied:
---------------------------------------------------------------------------
\9\ 49 FR 9494 (March 13, 1984), as corrected at 50 FR 41430
(October 10, 1985), as amended at 70 FR 49305 (August 23, 2005), and
as amended at 75 FR 38837 (July 6, 2010).
\10\ Section I(g) generally provides that ``[n]either the QPAM
nor any affiliate thereof . . . nor any owner . . . of a 5 percent
or more interest in the QPAM is a person who within the 10 years
immediately preceding the transaction has been either convicted or
released from imprisonment, whichever is later, as a result of''
certain felonies including income tax evasion and conspiracy or
attempt to commit income tax evasion.
---------------------------------------------------------------------------
(a) Any failure of the Credit Suisse Affiliated QPAMs or the Credit
Suisse Related QPAMs to satisfy Section I(g) of PTE 84-14 arose solely
from the Conviction;
(b) The Credit Suisse Affiliated QPAMs and the Credit Suisse
Related QPAMs (including officers, directors, employees, and agents of
such QPAMs) did not participate in the criminal conduct of Credit
Suisse AG that is the subject of the Conviction;
(c) The Credit Suisse Affiliated QPAMs and the Credit Suisse
Related QPAMs did not directly receive compensation in connection with
the criminal conduct of Credit Suisse AG that is the subject of the
Conviction;
(d) The criminal conduct of Credit Suisse AG that is the subject of
the Conviction did not directly or indirectly involve the assets of any
plan described in section 3(3) of ERISA (an ERISA-covered plan) or
section 4975(e)(1) of the Code (an IRA);
(e) Credit Suisse AG did not provide any fiduciary services to
ERISA-covered plans or IRAs, except in connection with securities
lending services of the New York Branch of Credit Suisse AG, or act as
a QPAM for ERISA-covered plans or IRAs;
(f) The Credit Suisse Affiliated QPAMs will not use their authority
or influence to direct an investment fund (as defined in Section VI(b)
of PTE 84-14) managed by a Credit Suisse Affiliated QPAM to enter into
any transaction with Credit Suisse AG or engage Credit Suisse AG to
provide additional services, for a fee, to the investment fund
regardless of whether such transactions or services may otherwise be
within the scope of relief provided by an administrative or statutory
exemption;
(g) Credit Suisse AG and the Credit Suisse Affiliated QPAMs will
ensure that no employee or agent involved in the criminal conduct that
underlies the Conviction will engage in transactions on behalf of any
investment fund (as defined in Section VI(b) of PTE 84-14) managed by
the Credit Suisse Affiliated QPAMs;
(h)(1) Credit Suisse AG and the Credit Suisse Affiliated QPAMs
immediately develop, implement, maintain, and follow written policies
(the Policies) requiring and designed to ensure that: (i) The asset
management decisions and asset management operations of the Credit
Suisse Affiliated QPAMs are conducted independently of Credit Suisse
AG's management and business activities; (ii) Credit Suisse AG and the
Credit Suisse Affiliated QPAMs fully comply with ERISA's fiduciary
duties and prohibited transaction provisions, and do not knowingly
participate in any violations of these duties and provisions; (iii)
Credit Suisse AG and the Credit Suisse Affiliated QPAMs do not
knowingly participate in any other person's violation of ERISA, the
Code, or other federal, state, or local law; (iv) any filings or
statements made to federal, state, or local government are accurate and
complete; (v) Credit Suisse AG and the Credit Suisse Affiliated QPAMs
do not make material misrepresentations or omit material information in
their communications with federal, state, or local government, or their
ERISA-covered plan and IRA clients; (vi) Credit Suisse AG and the
Credit Suisse Affiliated QPAMs comply with the terms of this exemption;
and (vii) any violations of or failure to comply with items (ii)
through (vi) are promptly reported in writing to appropriate corporate
officers, the head of U.S. Asset Management Compliance, the General
Counsel for Asset Management, the independent auditor responsible for
reviewing compliance with the Policies, and a non-QPAM fiduciary of any
affected ERISA-covered plan or IRA;
(2) Credit Suisse AG and the Credit Suisse Affiliated QPAMs also
immediately develop and implement a program of training (the Training),
conducted at least annually for Credit Suisse AG and Credit Suisse
Affiliated QPAM personnel; at a minimum, the training covers the
Policies, ERISA compliance (including fiduciary duties and the
prohibited transaction provisions) and ethical conduct, the
consequences for not complying with the conditions of this proposed
exemption, if granted, (including the loss of the exemptive relief
provided herein), prompt reporting of wrongdoing;
(i)(1) Credit Suisse AG and the Credit Suisse Affiliated QPAMs
submit to an audit conducted annually by an independent auditor, who
has been prudently selected and who has appropriate technical training
and proficiency with ERISA to evaluate the adequacy of the policies and
training required in paragraph (h), as well as compliance with those
requirements; the first of the audits must be completed no later than
twelve (12) months after a final exemption for the covered transactions
is granted in the Federal Register. The first audit must cover the
first six-month period that begins on the date a final exemption is
granted in the Federal Register; all subsequent audits must cover the
following corresponding twelve-month periods and be completed no later
than 6 months after the period to which the audit applies;
(2) The auditor's engagement shall specifically require the auditor
to determine whether Credit Suisse AG and the Credit Suisse Affiliated
QPAMs have developed, implemented, maintained, and followed Policies in
accordance with the conditions of this proposed exemption and developed
and implemented the Training, as required herein;
(3) The auditor shall test Credit Suisse AG's and each Credit
Suisse Affiliated QPAM's operational compliance with the Policies and
Training;
(4) For each audit, the auditor shall issue a written report (the
Audit Report) to Credit Suisse AG and the Credit Suisse Affiliated
QPAMs that describes the steps performed by the auditor during the
course of its examination. The Audit Report shall include the auditor's
specific determinations regarding the adequacy of the Policies and
Training; the auditor's recommendations (if any) with respect to
strengthening such Policies and Training; and any instances of Credit
Suisse AG's or the Credit Suisse
[[Page 52371]]
Affiliated QPAMs' noncompliance with the written Policies and Training
described in paragraph (h) above. Any determinations made by the
auditor regarding the adequacy of the Policies and Training and the
auditor's recommendations (if any) with respect to strengthening the
Policies and Training shall be promptly addressed by Credit Suisse AG
and the Credit Suisse Affiliated QPAMs, and any actions taken by Credit
Suisse AG or the Credit Suisse Affiliated QPAMs to address such
recommendations shall be included in an addendum to the Audit Report.
Any determinations by the auditor that Credit Suisse AG and the Credit
Suisse Affiliated QPAMs have implemented, maintained, and followed
sufficient Policies and Training, shall not be based solely or in
substantial part on an absence of evidence indicating noncompliance;
(5) The auditor shall notify Credit Suisse AG and the Credit Suisse
Affiliated QPAMs of any instances of noncompliance identified by the
auditor within five (5) business days after such noncompliance is
identified by the auditor, regardless of whether the audit has been
completed as of that date. Credit Suisse AG or a Credit Suisse
Affiliated QPAM shall provide written notice to the Department's Office
of Exemption Determinations (OED), Room N-5700, 200 Constitution Avenue
NW., Washington, DC 20210: Of any instances of noncompliance reviewed
by the auditor within ten (10) business days after such notice is
received from the auditor. Upon request, the auditor shall provide OED
with all of the relevant workpapers reflecting any instances of
noncompliance. The workpapers shall identify whether and to what extent
the assets of ERISA-covered plans or IRAs were involved in the
instance(s) of noncompliance and an explanation of any corrective
actions taken by Credit Suisse AG;
(6) With respect to each audit, an executive officer of Credit
Suisse AG and an executive officer of each Credit Suisse Affiliated
QPAM certifies in writing, under penalty of perjury, that the
respective officer has reviewed the Audit Report and this exemption,
addressed any inadequacies identified in the Audit Report, and
determined that the Policies and Training in effect at the time of
signing are adequate to ensure compliance with the conditions of this
exemption and with the applicable provisions of ERISA and the Code;
(7) Credit Suisse AG provides each certified Audit Report to OED no
later than 30 days following its completion and Credit Suisse AG and
the Credit Suisse Affiliated QPAMs make the Audit Report
unconditionally available for examination by any duly authorized
employee or representative of the Department, or other relevant
regulators, and any fiduciary of an ERISA-covered plan or IRA, the
assets of which are managed by a Credit Suisse Affiliated QPAM;
(j) The Credit Suisse Affiliated QPAMs comply with each condition
of PTE 84-14, as amended, with the sole exception of the violation of
Section I(g) that is attributable to the Conviction;
(k) In any agreements with ERISA-covered plans or IRAs for the
provision of asset management or other services, Credit Suisse AG and
the Credit Suisse Affiliated QPAMs agree to comply with ERISA and to
refrain from engaging in prohibited transactions; the agreements do not
purport to waive, limit, or qualify the liability of Credit Suisse AG
or the Credit Suisse Affiliated QPAMs for violating ERISA or engaging
in prohibited transactions; the agreements do not require the ERISA-
covered plans or IRAs (or sponsors of such ERISA-covered plans or IRAs)
to indemnify Credit Suisse AG or the Credit Suisse Affiliated QPAMs for
violating ERISA or engaging in prohibited transactions; the agreements
do not restrict the ability of such ERISA-covered plans or IRAs to
terminate or withdraw from their arrangements with Credit Suisse AG or
the Credit Suisse Affiliated QPAMs; and the agreements do not impose
any fees, penalties, or charges for such termination or withdrawal;
(l) After a final exemption is granted in the Federal Register,
Credit Suisse AG and the Credit Suisse Affiliated QPAMs will maintain
records necessary to demonstrate that the conditions of this exemption
have been met for six (6) years following the date of any transactions
for which Credit Suisse Affiliated QPAMs rely upon the relief in the
exemption;
(m)(1) Each sponsor of an ERISA-covered plan and each beneficial
owner of an IRA invested in an investment fund managed by a Credit
Suisse Affiliated QPAM, or the sponsor of an investment fund in any
case where a Credit Suisse Affiliated QPAM acts only as a sub-advisor
to the investment fund; (2) each entity that may be a Credit Suisse
Related QPAM; and (3) each ERISA-covered plan for which the New York
Branch of Credit Suisse AG provides fiduciary securities lending
services, receives this notice of proposed exemption along with a
separate summary describing the facts that led to the Conviction, which
has been submitted to the Department, and a prominently displayed
statement that the Conviction results in a failure to meet a condition
in PTE 84-14;
(n) A Credit Suisse Affiliated QPAM will not fail to meet the terms
of this proposed exemption, if granted, solely because a Credit Suisse
Related QPAM fails to satisfy a condition for relief under this
exemption. A Credit Suisse Related QPAM will not fail to meet the terms
of this proposed exemption, if granted, solely because Credit Suisse
AG, a Credit Suisse Affiliated QPAM, or a different Credit Suisse
Related QPAM fails to satisfy a condition for relief under this
exemption.
Section II: Definitions
(a) The term ``Credit Suisse Affiliated QPAM'' means a ``qualified
professional asset manager'' (as defined in section VI(a) \11\ of PTE
84-14) that relies on the relief provided by PTE 84-14 and with respect
to which Credit Suisse AG is a current or future ``affiliate'' (as
defined in section VI(d) of PTE 84-14). The term ``Credit Suisse
Affiliated QPAM'' excludes Credit Suisse AG.
---------------------------------------------------------------------------
\11\ In general terms, a QPAM is an independent fiduciary that
is a bank, savings and loan association, insurance company, or
investment adviser that meets certain equity or net worth
requirements and other licensure requirements and such bank, savings
and loan association, insurance company, or investment adviser has
acknowledged in a written management agreement that it is a
fiduciary with respect to each plan that has retained the QPAM.
---------------------------------------------------------------------------
(b) The term ``Credit Suisse Related QPAM'' means any current or
future ``qualified professional asset manager'' (as defined in section
VI(a) of PTE 84-14) that relies on the relief provided by PTE 84-14,
and with respect to which Credit Suisse AG owns a direct or indirect
five percent or more interest, but with respect to which Credit Suisse
AG is not an ``affiliate'' (as defined in section VI(d) of PTE 84-14).
(c) The term ``Conviction'' means the judgment of conviction
against Credit Suisse AG for one count of conspiracy to violate section
7206(2) of the Internal Revenue Code in violation of Title 18, United
States Code, Section 371, which is scheduled to be entered in the
District Court for the Eastern District of Virginia in Case Number
1:14-cr-188-RBS.
Signed at Washington, DC, this 28th day of August, 2014.
Lyssa Hall,
Director of Exemption Determinations, Employee Benefits Security
Administration, U.S. Department of Labor.
[FR Doc. 2014-20884 Filed 9-2-14; 8:45 am]
BILLING CODE 4510-29-P