[Federal Register Volume 79, Number 222 (Tuesday, November 18, 2014)]
[Notices]
[Pages 68716-68726]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2014-27172]
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DEPARTMENT OF LABOR
Employee Benefits Security Administration
[Prohibited Transaction Exemption 2014-11; Application No. D-11819]
Notice of Exemption Involving Credit Suisse AG (Hereinafter,
Either CSAG or the Applicant) Located in Zurich, Switzerland
AGENCY: Employee Benefits Security Administration, U.S. Department of
Labor.
ACTION: Notice of Temporary Exemption.
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SUMMARY: This document contains a notice of temporary 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 exemption
would affect the ability of certain entities with specified
relationships to CSAG to continue to rely upon the relief provided by
Prohibited Transaction Class Exemption 84-14 for a period of one year
from the date of publication of this notice.
DATES: Effective Date: This temporary exemption will be effective as of
the date a judgment of conviction against
[[Page 68717]]
CSAG 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 and will expire one year
from the date of publication in the Federal Register.
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: On September 3, 2014, the Department of
Labor (the Department) published a notice of proposed exemption in the
Federal Register at 79 FR 52365, proposing that certain entities with
specified relationships to CSAG could continue to rely upon the relief
provided by Prohibited Transaction Class Exemption (PTE) 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
CSAG 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 described a set of additional conditions, designed to protect
ERISA-covered plans and IRAs, that the entities with specified
relationships to CSAG must satisfy in order to rely upon the relief in
PTE 84-14. The exemption was requested by CSAG pursuant to section
408(a) of ERISA 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.
Written Comments
The Department invited all interested persons to submit written
comments and/or requests for a public hearing with respect to the
notice of proposed exemption published in the Federal Register on
September 3, 2014, at 79 FR 52365 on or before October 10, 2014. During
the comment period, the Department received no telephone inquiries and
ten written comments on the proposed exemption. The commenters include
eight members of the general public, members of the U.S. House of
Representatives (the Representatives), and the Applicant. Other than
the Applicant, the commenters generally opposed granting an exemption
to CSAG because of its pending criminal conviction or raised issues
outside the scope of the exemption. The comment from the Applicant
requested certain changes to the operative language of the exemption
and provided additional information in support of the requested
changes.
The Department also received four hearing requests during the
comment period from individuals, including the Representatives. The
Department has decided to hold a hearing, consistent with its authority
under 29 CFR 2570.47, in order to more fully explore the issues raised
by the commenters. A separate notice of hearing will be published
elsewhere in this issue of the Federal Register.
A discussion of the comments, the Applicants' responses, and the
Applicant's comment follows below. Any capitalized terms used herein
that are not otherwise defined have the meanings ascribed to them in
the Summary of Facts and Representations in the notice of proposed
exemption published in the Federal Register on September 3, 2014 at 79
FR 52365.
Public Comments and Applicant's Response
1. Rollins, Lang, Rose, Johnson, and Blixseth Letters
The Rollins Letter expressed concern that grant of the proposed
exemption would undermine the public interest in enforcing criminal
sanctions for corporate misconduct and deterring future wrongdoing. The
Lang letter asserted that fines alone were inadequate sanctions for the
Applicant's misconduct and, accordingly, that the Department should
deny the exemption. The Rose letter suggested that grant of an
exemption would warrant presidential impeachment. The Johnson letter
commented that approval of the exemption would send a message that
large or politically powerful banks could ignore federal laws. The
Johnson Letter also stressed that the federal government has an
obligation to ensure the integrity of all companies dealing with
pension funds. According to the letter, the cost to pension plans of
moving funds away from asset managers affiliated with CSAG would be
negligible if pension plans were given 30 days to relocate their
accounts. The letter also suggested that grant of an exemption would
prevent CSAG's criminal conviction from having its intended deterrent
effect. Finally, the Blixseth letter described various business
practices and controversies, which it asserted had resulted in past
fines and settlements against CSAG and related entities, and argued for
denial of the exemption application.
The Applicant noted the commenters' view that the exemption should
be denied as a means of holding CSAG accountable and deterring other
banks from criminal misconduct, but asserted that the Applicant
nevertheless meets the standards under section 408(a) of ERISA for
grant of an exemption. The Applicant disputed that there was any basis
for denying an exemption to all of CSAG's affiliates and related
entities based on the misconduct of a single entity. According to the
Applicant, the arguments for denial of the exemption are inconsistent
with section 411 of ERISA, which authorizes the Department to debar a
fiduciary convicted of a felony, but not its affiliates.
The Applicant asserts that the need to hold CSAG accountable for
criminal misconduct and the propriety of the Department of Justice's
Plea Agreement are not at issue in the exemption process. Additionally,
the Applicant suggests that the proposed exemption would hold CSAG
accountable, in any event, because the relief would only be available
to affiliated managers (not CSAG) and only if they follow fourteen
stringent new conditions, in addition to the seven conditions in Part I
of PTE 84-14 (including its integrity condition, Part I(g), as modified
by the proposed exemption). The Applicant also states that CSAG already
faces significant sanctions for criminal misconduct, as evidenced by
its agreement to pay $2.8 billion to the Justice Department, Securities
and Exchange Commission, Internal Revenue Service, New York State
Department of Financial Services, and the Federal Reserve.
2. Spalding Letter
The Spalding letter commented that the proposed exemption was
insufficiently detailed with respect to the investment strategies
utilized by affected asset managers and with respect to the proposed
audit requirements of the exemption. The letter also suggested that the
Department should take an active role in preventing systemic flaws that
are tied to market making consortiums.
The Applicant noted Mr. Spalding's objections to the exemption and
his
[[Page 68718]]
concerns with respect to derivatives and other investment strategies
that asset manager affiliates of CSAG could pursue, but argued that the
propriety of these strategies should properly be left to the named
fiduciaries or IRA owners who hire asset managers to pursue such
strategies. The Applicant further argued that such concerns were
irrelevant to the proposed exemption, which, did not address or concern
specific investment strategies.
3. Representatives Waters, Lynch & Miller (the Representatives) Letter
The Representatives suggest that the American public has grown
increasingly frustrated about a lack of accountability in our financial
system, both with regard to conduct contributing to the financial
crisis and to scandals that have occurred since then. While they note
that law enforcement has obtained record monetary settlements in
response to financial misconduct, the Representatives remain concerned
that regulators are failing to use the full arsenal of tools available
to them to protect the public and retirees from bad actors and to
ensure that criminal behavior is appropriately deterred. The
Representatives suggest that the beneficial status of ``qualified
professional asset manager'' should be reserved for institutions that
have shown a commitment to maintaining a high standard of integrity via
compliance with the law and that the Department's process for
evaluating exemption requests like the Applicant's may not be
sufficiently robust to maintain this standard.
The Applicant asserts that the Department should not base its
decision on the goals of deterrence and accountability for the same
reasons set forth in its responses to the Rollins, Lang, Rose, Johnson,
and Blixseth Letters, above. In addition, the Applicant states that
conduct of other financial institutions in connection with the
financial crisis and the question of whether those institutions have
been appropriately punished are irrelevant to determining whether the
Department should grant an exemption providing relief to affiliated
managers of CSAG.
The Applicant also disputes that the Department's approval of past
exemption requests relating to a failure of Section I(g) indicates that
approval is automatic, thereby undermining financial firms' incentives
to comply with the law and existing exemptions. The Applicant states
that those exemptions imposed additional conditions appropriate to the
particular cases at issue and were granted only after notice and
comment from interested parties. The Applicant asserts that, consistent
with the requirements of section 408(a) of ERISA, the Department has
exercised appropriate caution, evaluated the benefits of the exemption
to plans managed by affiliates of CSAG and fashioned a set of stringent
additional conditions to ensure that plans' interests are protected.
In addition, the Applicant notes that CSAG, the entity that entered
into the Plea Agreement with the Justice Department, is receiving no
relief under the proposed exemption and will be unable to rely upon PTE
84-14 for ten years. The Applicant states that, consequently, the only
entities receiving relief under the proposed exemption are affiliated
asset managers that are registered U.S. advisers, have their own
employees, compliance systems and record of legal compliance and that
were not engaged in the conduct underlying the Plea Agreement. The
Applicant also states that the exemption does not excuse these managers
from compliance with Section I(g) of PTE 84-14, which requires that
neither the manager nor its affiliates have been convicted of certain
crimes. Under the proposed exemption, Section I(g) will continue to
apply, with the sole exception of the Conviction resulting from the
Plea Agreement.
Finally, the Applicant points to the imposition of fourteen
additional substantive conditions in the proposed exemption, in
addition to the seven conditions found in Part I of PTE 84-14, which
include, among other things, compliance reviews by an independent
auditor, policies and procedures covering six different substantive
areas (e.g., independence of QPAM decisions from CSAG, ERISA
compliance, and prompt reporting of violations), training on those
policies and procedures, an annual audit, and significant reporting to
plans and to the Department. The Applicant adds that the new conditions
also require that no employee who participated in the conduct
underlying the Plea Agreement be involved in the affiliate's asset
management decisions, and that the affiliate will not cause plans to
trade with, or procure services for a fee from CSAG, ensuring
separation of the affiliates' asset management decisions from the
influence of CSAG.
4. Public Citizen Letter
In its letter, Public Citizen stresses the importance of deterring
criminal activity and expresses its view that grant of the exemption
would undermine deterrence. In addition, Public Citizen questions
whether it can be verified that employees of CSAG's affiliates were
uninvolved in the crime. The Applicant believes that its response to
the letters from Rollins, Lang, Rose, Johnson, and Blixseth is also
responsive to Public Citizen's concern about deterrence and corporate
abuse. The Applicant additionally argues that CSAG engaged in an
extensive due diligence process to ensure that it could certify the
truth of its statement that its affiliates' employees were uninvolved
in CSAG's criminal activities, and that, as a protective safeguard, the
proposed exemption is expressly conditioned on the fact that no
employee involved in the crime will participate in the asset management
decisions of the investment managers.
5. Financial Recovery and Consulting Services Pty Ltd (FRCS) Letter
The FRCS letter explains that FRCS represents international and
U.S. former customers of CSAG who were victims of a fraud or
embezzlement. The letter outlines information that FRCS believes should
have been, but was not, included in CSAG's application to the
Department requesting the proposed exemption. FRCS requests that the
Department only consider granting temporary relief to the Applicant, if
any relief is to be given. In support of this request, FRCS submitted a
history of conduct at various Credit Suisse affiliates that FRCS
considers corrupt. Finally, FRCS suggests that CSAG's application does
not meet the statutory requirements for an exemption to be issued.
In response, the Applicant objects to any suggestion that the
Department deny the exemption as a means to punish CSAG for misconduct,
and references its response to the similar concerns expressed in the
Rollins, Lang, Rose, Johnson, and Blixseth Letters. The Applicant also
disputes FRCS' argument that plan costs could be reduced appropriately
by granting temporary relief to allow Credit Suisse affiliates to
liquidate plan accounts over time. Furthermore, the Applicant states
that the comment failed to take into account the costs that denying the
exemption would impose on plans that continue to use CSAG affiliates to
manage their assets. According to CSAG, those plans would lose access
to the trading and pricing efficiencies that PTE 84-14 affords for a
period of ten years after the conviction.
Applicant's Comment
The Applicant's comment generally requests a variety of changes to
the operative language of the exemption, requests clarification on the
meaning of certain language, and provides
[[Page 68719]]
additional information in support of any requests for changes or
clarification.
1. Section I(b).
As proposed, Section I(b) of the exemption conditions relief on a
requirement that the Credit Suisse Affiliated QPAMs, Credit Suisse
Related QPAMs, and their officers, directors, ``agents,'' and employees
not have participated in the criminal conduct that is the subject of
the Conviction. The Applicant requests that the term ``agents'' be
removed from Section I(b). The Applicant states that, to the best of
its knowledge after due inquiry, the Credit Suisse Affiliated QPAMs and
the Credit Suisse Related QPAMs did not participate in the criminal
conduct nor did their officers, directors, or employees. However, the
Applicant notes that CSAG, which was involved in the criminal conduct,
could have previously acted as an agent for a Credit Suisse Affiliated
QPAM in some capacity that is unconnected to its criminal conduct or
asset management decisions, such as service of process in a foreign
country. Therefore, in light of the potentially broad scope of the term
``agents,'' the Applicant is reluctant to make a representation that
includes the term ``agents.'' After consideration of the comment, the
Department has substituted ``agents other than Credit Suisse AG'' for
the term ``agents.'' Thus, subject to this modification, it remains a
condition of the exemption that ``[t]he Credit Suisse Affiliated QPAMs
and the Credit Suisse Related QPAMs (including officers, directors,
agents other than Credit Suisse AG, and employees of such QPAMs) did
not participate in the criminal conduct of Credit Suisse AG that is the
subject of the Conviction.'' Accordingly, the QPAMs, their officers,
directors, agents (other than CSAG), and employees must not have aided,
assisted in, procured, counseled, or advised the preparation and
presentation of false income tax returns and other documents to the
Internal Revenue Service of the Treasury Department.
2. Section I(d).
The Applicant requests clarification that an ``ERISA-covered plan''
or ``IRA'' in Section I(d) and throughout the exemption refers only to
plans subject to Part 4 of Title I of ERISA and section 4975 of the
Code. That was the Department's intent and it has, therefore, clarified
that an ``ERISA-covered plan'' or ``IRA'' refers only to such plans by
substituting ``subject to Part 4 of Title I of ERISA'' for ``described
in section 3(3) of ERISA'' and ``section 4975 of the Code'' for
``section 4975(e)(1) of the Code.'' Thus, subject to this modification,
it remains a condition of the exemption that ``[t]he criminal conduct
of Credit Suisse AG that is the subject of the Conviction did not
directly or indirectly involve the assets of any plan subject to Part 4
of Title I of ERISA (an ERISA-covered plan) or section 4975 of the Code
(an IRA).
3. Section I(f).
As proposed, Section I(f) of the exemption provides that a Credit
Suisse Affiliated QPAM will not use its authority or influence to
direct an investment fund managed by the QPAM to enter into any
transaction with Credit Suisse AG or engage Credit Suisse AG to provide
additional services for a fee borne by the investment fund.
The Applicant requests that Section I(f) provide an exception for
certain subcustody arrangements entered into with CSAG by global
custodians that are unaffiliated with CSAG. According to the Applicant,
to the extent that a Credit Suisse Affiliated QPAM invests in a market
where CSAG is the local subcustodian or effects the transaction in that
market, CSAG could receive compensation from the global custodian.
The Department declines to add a specific exception to the language
in Section I(f) as requested by the Applicant. In this regard, the
Department is concerned about the potential for self-dealing inasmuch
as, depending on the facts and circumstances, a Credit Suisse
Affiliated QPAM might effectively use its ``authority or influence to
direct'' an investment fund to ``enter into any transaction with'' CSAG
or ``provide additional services, for a fee borne by'' the investment
fund. The Department notes, however, that it is not expressing a view
on whether any particular transaction would constitute a separate
prohibited transaction under ERISA or the Code.
The Applicant also requests clarification that if a Credit Suisse
Affiliated QPAM obtains services from CSAG without cost to an ERISA-
covered plan or IRA (e.g., at the QPAM's own expense), the condition in
Section I(f) will not be violated. The Department clarifies that
services provided for no additional cost to an ERISA-covered plan or
IRA would not fall within the scope of Section I(f). Accordingly, the
Department has modified the phrase ``provide additional services for a
fee to the investment fund'' to read, ``provide additional services to
such investment fund, for a direct or indirect fee borne by such
investment fund'' to make the intent of this Section I(f) clear.
The Applicant additionally requests that Section I(f) provide an
exception for transactions covered under PTE 75-1, Part III and PTE
2008-07,\1\ which permit Credit Suisse Affiliated QPAMs to purchase
securities from third parties in an underwriting syndicate where a
Credit Suisse Affiliated QPAM's affiliate is a member or manager of the
underwriting syndicate. The Applicant believes that prohibiting the use
of such exemptions would harm plans, especially with respect to foreign
issuers, where CSAG may often be a manager or member of an underwriting
syndicate. The Department declines to add language that excepts
transactions covered by PTE 75-1, Part III and PTE 2008-07 from this
condition because the transactions permitted by these PTEs are not
within the scope of transactions prohibited under Section I(f).
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\1\ For PTE 75-1, see 40 FR 50845 (October 31, 1975), as amended
at 69 FR 23216 (April 28, 2004), 71 FR 5883 (February 3, 2006), and
78 FR 37572 (June 21, 2013); for PTE 2008-07, see 73 FR 27565 (May
13, 2008).
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4. Section I(g).
Section I(g) of the proposed exemption provides that Credit Suisse
AG and each Credit Suisse Affiliated QPAM 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. The
Applicant requests that the reference to ``Credit Suisse AG'' be
removed from this section since CSAG is the convicted entity and the
Credit Suisse Affiliated QPAMs are in the best position to ensure
compliance with the requirements of the condition provided in Section
I(g). Additionally, the Applicant represents that CSAG lacks the
authority to monitor all of the Credit Suisse Affiliated QPAMs or to
dictate hiring decisions because CSAG may not have operational control
of certain Credit Suisse Affiliated QPAMs despite having ``control''
(as that term is defined in Section VI(e) of PTE 84-14) \2\ over such
entities. The Department concurs that the responsibility for complying
with this condition should be imposed upon the Credit Suisse Affiliated
QPAMs, and has removed the reference to ``Credit Suisse AG'' in Section
I(g) and also added ``Each'' to the beginning of this section to
clarify that the condition is imposed upon each individual Credit
Suisse Affiliated QPAM and that each such Credit Suisse Affiliated QPAM
is responsible only for maintaining its own compliance, rather than the
compliance of all other Credit Suisse Affiliated QPAMs. Furthermore,
the phrase ``subject to ERISA'' has been
[[Page 68720]]
added to Section I(g) after the reference to ``investment fund'' to
provide additional clarification that Section I(g) only applies to
investment funds for which relief under PTE 84-14 is used.
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\2\ 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.
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Additionally, the Applicant requests clarification that a Credit
Suisse Affiliated QPAM's failure to comply with this condition will
prevent only that particular QPAM from relying on this exemption rather
than disqualifying all of the other Credit Suisse Affiliated QPAMs. The
Department believes that the changes noted above, combined with changes
made to Section I(n), discussed below, provide the necessary
clarification to this section and address the Applicant's concerns.
Finally, the Applicant requests that the term ``agent'' be removed
from this section because of its breadth. The Department declines to
remove the term ``agent'' because it could permit the Credit Suisse
Affiliated QPAMs to use individuals involved in CSAG's criminal
activities as their agents. Accordingly, Section I(g) provides that
each Credit Suisse Affiliated QPAM is obligated to ensure that none of
its employee or agents, if any, that were involved in the criminal
conduct that underlies the Conviction will engage in transactions on
behalf of the investment funds it manages.
5. Section I(h).
Section I(h) of the proposed Exemption requires the Applicant to
adopt and adhere to specified policies and procedures (the Policies).
The Applicant requests that the scope of Section I(h) be clarified to
make clear that the requirements of Section I(h) apply to the Credit
Suisse Affiliated QPAMs' ERISA-covered plan and IRA clients. The
Applicant notes that, in its original form, this section could be
interpreted to apply to the assets of other individuals and entities
that are not subject to ERISA or the Code. The Applicant also asks the
Department to provide clarification on the scope of laws covered by
Section I(h)'s requirement of compliance with various state and federal
laws, including whether such compliance specifically relates to the
asset management activities of the QPAMs with respect to their ERISA-
covered plans and IRAs.
The Department notes that Section I(h) only applies to ERISA-
covered plans and IRAs since the relief in PTE 84-14 only applies to
such plans and IRAS. However, the Department agrees that additional
language could clarify this intent. Therefore, the Department has added
qualifying language, where appropriate, to indicate that the
requirements of Section I(h) apply to ERISA-covered plans and IRAs, and
with respect to compliance with the requirements of ERISA and the Code.
The Applicant also requests that the term ``follow'' be removed
from the prefatory clause of Section I(h), which requires the Credit
Suisse Affiliated QPAMs to follow and adhere to the mandated Policies.
The Applicant objects that if ``follow'' is interpreted strictly, it
could result in a failure by a Credit Suisse Affiliated QPAM to meet
the condition in this section if a Credit Suisse Affiliated QPAM does
not perfectly adhere to the Policies and avoid all mistakes, including
inadvertent, technical, or good faith errors. Alternatively, the
Applicant asks for clarification that the term ``follow'' means only
that a Credit Suisse Affiliated QPAM must promptly follow the Policies'
correction and reporting mechanisms when it knows or should know of a
violation of such Policies.
The Department declines to remove the term ``follow'' from the
prefatory clause of Section I(h), inasmuch as it intends for the Credit
Suisse Affiliated QPAMs not only to adopt the mandated Policies, but
also to adhere to them. The Department agrees, however, that the Credit
Suisse Affiliated QPAMs--and the plans they serve--should not run the
risk of losing the exemption based on inadvertent, good faith, or de
minimis compliance errors. Accordingly, the Department has amended
Subsection I(h)(vii) of the exemption to provide that they will not be
treated as having failed to develop, implement, maintain or follow the
Policies, provided that they correct any instances of noncompliance
promptly when discovered or when they reasonably should have known of
the noncompliance (whichever is earlier), and provided that they adhere
to the reporting requirements for violations that are not promptly
corrected.
The Applicant also requests that the reference to ``asset
management operations'' be removed from Subsection I(h)(1)(i). The
Applicant explains that ``asset management decisions'' fully
encompasses fiduciary decision-making by Credit Suisse Affiliated
QPAMs. In contrast, ``asset management operations'' could include
unrelated business activities, such as information technology security,
employee non-discrimination, and workplace, safety, and health issues,
matters in which CSAG may, in fact, be involved, but which have no
impact on the independence of asset management decisions. Based on this
additional information provided by the Applicant, the Department
concurs and has removed the phrase ``and asset management operations''
from this subsection.
Furthermore, the Applicant requests that references to ``Credit
Suisse AG'' be removed from Subsection I(h)(1)(ii)-(vii) because CSAG
does not act as a fiduciary for ERISA-covered plans or IRAs in reliance
on PTE 84-14. Additionally, the Applicant suggests that imposing these
requirements on CSAG would potentially impact branches in non-U.S.
markets that do not have any ERISA-covered plan or IRA clients. The
Department concurs that this condition should only apply to each Credit
Suisse Affiliated QPAM that relies upon PTE 84-14. Therefore,
consistent with other sections where the phrase ``Credit Suisse AG''
has been removed, it has also been removed from these subsections.
The Applicant also requests that the filing requirements in
Subsections I(h)(1)(iv) and (v) be modified to clarify that they apply
only to filings with regulators of ERISA-covered plans and IRAS,
including the Department of Labor, Department of the Treasury,
Department of Justice, and the Pension Benefit Guaranty Corporation.
The Department generally concurs with this modification, but notes that
the regulators identified in the operative language are listed solely
as examples. To the extent that Credit Suisse Affiliated QPAMs engage
in filings on behalf of ERISA-covered plans and IRAs with other
regulators, those filings would also be covered by these subsections.
Therefore, the Department has modified the phrase ``any filings or
statements made to federal, state, or local government are accurate and
complete'' in Subsection I(h)(1)(iv) to read, ``any filings or
statements made by the Credit Suisse Affiliated QPAMs to regulators,
including but not limited to, the Department of Labor, the Department
of the Treasury, the Department of Justice, and the Pension Benefit
Guaranty Corporation, on behalf of ERISA-covered plans or IRAs are
materially accurate and complete, to the best of such QPAM's knowledge
at that time.'' Additionally, the Department has modified the phrase
``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'' in Subsection I(h)(1)(v) to read, ``the Credit Suisse
Affiliated QPAM does not make material misrepresentations or omit
material information in its communications with such regulators with
respect to ERISA-covered plans or IRAs, or make material
misrepresentations or omit material
[[Page 68721]]
information in its communications with ERISA-covered plan and IRA
clients.''
The Applicant requests that the condition in Subsection
I(h)(1)(vii) requiring reporting of violations to specified persons
apply only when a Credit Suisse Affiliated QPAM fails to follow the
correction and reporting mechanisms built into the Policies, and not in
every instance. The Applicant suggests that reporting every error, even
those that are generally considered correctable in accordance with
ERISA or the Code, may overwhelm the reports' recipients and provide
little protection to ERISA-covered plans and IRAs. The Department
agrees with the Applicant and has modified the phrase ``any violations
of or failure to comply with items (ii) through (vi) are promptly
reported in writing'' in Subsection I(h)(1)(vii) to read, ``any
violations of or failure to comply with items (ii) through (vi) are
corrected promptly upon discovery and any such violations or compliance
failures not promptly corrected are reported, upon discovering the
failure to promptly correct, in writing . . .''
The Department notes, however, that as part of the auditor's review
of the operational compliance of each Credit Suisse Affiliated QPAM (as
noted in Subsection I(i)(3)), each Credit Suisse Affiliated QPAM should
provide documentation to the auditor that reflects any appropriate
corrections made as outlined in the Policies. The Department notes
further that the documentation of the errors is a means by which the
auditor may test operational compliance with the Policies and
demonstrate a QPAM's ERISA and Code compliance.
The Applicant requests additional clarification with respect to
Subsection I(h)(1)(vii). First, the Applicant requests that each Credit
Suisse Affiliated QPAM be required to report to its own General Counsel
for Asset Management and head of Compliance, positions which currently
exist at each Credit Suisse Affiliated QPAM. Second, the Applicant
requests that the Department clarify that a ``non-QPAM fiduciary'' in
the context of this subsection is a fiduciary for any affected ERISA-
covered plan or IRA who is independent of the Applicant and its
affiliates, regardless of whether such fiduciary also happens to be a
QPAM, but that such fiduciary need not be independent when dealing with
one of its affiliates' own plans or the IRAs of their employees. The
Department concurs that clarification is appropriate and has thus
changed ``the head of U.S. Asset Management Compliance'' and ``the
General Counsel for Asset Management'' to ``the head of Compliance''
and ``the General Counsel of the relevant Credit Suisse Affiliated
QPAM.'' The Department has also modified ``non-QPAM fiduciary of any
affected ERISA-covered Plan or IRA'' to read, ``a fiduciary of any
affected ERISA-covered plan or IRA where such fiduciary is independent
of Credit Suisse AG; however, with respect to any ERISA-covered plans
or IRAs sponsored by an affiliate (as defined in Section VI(d) of PTE
84-14) of Credit Suisse AG or beneficially owned by an employee of
Credit Suisse AG or its affiliates, such fiduciary does not need to be
independent of Credit Suisse AG.''
The Applicant also requests that Subsections I(h)(1) and I(h)(2),
with respect to reporting violations, only apply to violations with
respect to the development and implementation of the Policies and
Training. The Department disagrees that such a limitation is
appropriate because those subsections simply outline what should be
included in the Policies and Training. Additionally, the Department
notes the other changes made to Subsection I(h)(1) significantly
clarify the nature of violations and compliance failures that must be
reported. Finally, the Department notes that the Credit Suisse
Affiliated QPAMs, as fiduciaries, may have additional notification
responsibilities and duties outside the scope of this exemption.
6. Section I(i).
The Applicant requests that references to ``Credit Suisse AG'' be
removed from Section I(i) since only the Credit Suisse Affiliated QPAMs
will have Policies and Training in place. The Department concurs with
this change and has removed all references to ``Credit Suisse AG'' from
Subsection I(i) except in Subsection I(i)(4), which requires that CSAG,
the parent company of the Credit Suisse Affiliated QPAMs, also receive
the Audit Reports. It is the Department's view that CSAG should
generally be on notice of the legal compliance efforts of its
subsidiary-affiliates.
The Applicant additionally requests clarification that the audit
requirement will apply to a Credit Suisse Affiliated QPAM only at such
time as it has ERISA-covered plan clients or IRA clients for which it
relies upon PTE 84-14. The Department notes that any current and future
affiliates that are not currently relying on PTE 84-14 for transactions
need not submit to an audit (and therefore need not have Policies and
Training in place) until such time as they begin relying on the relief
in PTE 84-14.
Furthermore, the Applicant requests that the compliance review,
determination, and testing contemplated in Subsections I(i)(1), (2),
and (3) should be limited to the development, maintenance, and
implementation of the Policies and Training. The Department believes
that based on modifications already made to Section I(h), limiting this
condition as requested by the Applicant is unnecessary. Section I(h)
has already been modified to apply to ERISA-covered plans and IRAs and
compliance with laws applicable to such plans and IRAs. Additionally,
the Department believes operational compliance is an important aspect
of protecting ERISA-covered plan and IRA clients of the Credit Suisse
Affiliated QPAMs. Therefore, the Department declines to limit
Subsections I(i)(1), (2), and (3) in the requested manner.
The Applicant requests confirmation that, with respect to the audit
requirement in Section I(i) of the exemption, each of the Credit Suisse
Affiliated QPAMs may be covered by a separate audit and Audit Report.
The Applicant notes that there are situations where a Credit Suisse
Affiliated QPAM is not wholly owned by CSAG, and such QPAM might be a
competitor with another Credit Suisse Affiliated QPAM. The Department
did not intend to require that all of the Credit Suisse Affiliated
QPAMs be covered by a single Audit Report and has substituted the
phrase ``each Credit Suisse Affiliated QPAM'' in place of ``the Credit
Suisse Affiliated QPAMs,'' where appropriate in Section I(i), to
reflect the requested confirmation.
The Applicant also requests that the Department confirm that the
phrase ``any instances of Credit Suisse AG's or the Credit Suisse
Affiliated QPAMs' noncompliance with the written Policies and Training
described in paragraph (h) above,'' In Subsection I(i)(4) refers only
to failures to develop and implement the Policies and Training. The
Department notes that this language, now modified to remove the
reference to ``Credit Suisse AG'' requires that any instances of
noncompliance which are not corrected in accordance with the Policies
and which are reported separately to the Auditor under Subsection
I(h)(1)(vii) should be noted in the Audit Report. The auditor may also
choose to utilize its discretion under this requirement to include, for
example, a type of error that occurs frequently despite being properly
corrected on each occasion, where, in the auditor's independent
judgment, such repeated errors might rise to a level that the auditor
determines should be addressed by a particular Credit Suisse Affiliated
QPAM.
[[Page 68722]]
The Applicant requests clarification that where the auditor
identifies an instance of noncompliance while engaging in the audit,
under Subsection I(i)(5), that such notification only needs to be sent
to the Credit Suisse Affiliated QPAM to which it applies. The
Department notes that the Applicant's understanding of Subsection
I(i)(5) is correct and has modified the phrase ``The auditor shall
notify Credit Suisse AG and the Credit Suisse Affiliated QPAMs'' in
Subsection I(i)(5) to read, ``The auditor shall notify the respective
Credit Suisse Affiliated QPAM'' in order to provide additional
clarification. Furthermore, the Department has decided to strike the
sentence, ``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'' from the final temporary exemption because all such
instances of noncompliance should be included in the Audit Reports,
which the Department will receive upon completion thereof.
The Applicant notes that in the last sentence of Subsection
I(i)(5), the reference to an ``explanation of any corrective actions
taken by Credit Suisse AG'' should refer to corrective actions taken by
a Credit Suisse Affiliated QPAM since the Credit Suisse Affiliated
QPAMs must operate independently of CSAG. The Department concurs and
has changed that phrase so that it now reads, ``explanation of any
corrective or remedial actions taken by the respective Credit Suisse
Affiliated QPAM.''
Finally, the Applicant requests that the reference to ``Credit
Suisse AG'' also be removed from Subsection I(i)(6) and that the
executive officer of each Credit Suisse Affiliated QPAM only be
responsible for certifying its own Audit Report. The Department concurs
that the executive of each Credit Suisse Affiliated QPAM officer need
only certify the Audit Report for the particular QPAM for which he/she
works. However, the Department believes it is important for CSAG to be
on notice of the content contained in the Audit Reports. Therefore, the
Department has modified the language in Subsection I(i)(6) to indicate
that each Credit Suisse Affiliated QPAM is responsible for certifying
its own audit and the sufficiency of its Policies and Training, but has
added new Subsection I(i)(7) that requires an executive officer of CSAG
to certify in writing that he/she has reviewed the Audit Reports of the
Credit Suisse Affiliated QPAMs. The former Subsection I(i)(7) has been
renumbered as I(i)(8).
7. Section I(k).
Additionally, the Applicant asserts that the phrase ``or other
services'' in Section I(k) requiring CSAG and the Credit Suisse
Affiliated QPAMs to agree to certain undertakings in their agreements
with their ERISA-covered plan and IRA clients, may be overbroad,
especially as it applies to one of the Credit Suisse Affiliated QPAMs
that is a dual-registrant (i.e., both broker-dealer and investment
adviser). Therefore, the Applicant requests that the phrase ``or other
services'' in Section I(k) be changed to read, ``or other discretionary
fiduciary services.'' The Department concurs with the Applicant's
request to clarify the scope of Section I(k), and has altered Section
I(k) accordingly.
The Applicant also notes that, with respect to the undertakings
required by Section I(k), the Credit Suisse Affiliated QPAMs do not
have the authority to unilaterally modify their contracts with ERISA-
covered plans and IRAs, and that getting bilateral approval of such a
change with each client would be time-consuming. Therefore, the
Applicant proposes that the Department impose a unilateral requirement
on the Credit Suisse Affiliated QPAMs which would effectively
incorporate the same protections for ERISA-covered plans and IRAs. The
Department concurs that this is a sensible modification that will not
reduce the protections for ERISA-covered plans and IRAs, and,
accordingly, the exemption has been modified to require that the Credit
Suisse Affiliated QPAMs send notice to their ERISA-covered plan and IRA
clients of this unilateral requirement within six months of the date of
a final granted exemption in the Federal Register. Additionally, the
Department has added language that clearly makes the undertakings
required by Section I(k) effective immediately upon publication of this
final granted temporary exemption, although the Credit Suisse
Affiliated QPAMs have six months to complete the notification.
The Applicant requests that ``the Code'' be referenced in
appropriate places in Section I(k) to clarify the scope of the
applicability to IRAs. The Department concurs and has modified the
language in Section I(k) where appropriate.
The Applicant also requests clarification whether, under Section
I(k), the Credit Suisse Affiliated QPAMS are prohibited from being
indemnified for prohibited transactions that are not caused by the
Credit Suisse Affiliated QPAMs (i.e., where the plan fiduciary or a
service provider selected by the plan fiduciary and unrelated to CSAG
or a Credit Suisse Affiliated QPAM causes a prohibited transaction or
error). The Department confirms that the Credit Suisse Affiliated QPAMs
are not prohibited from being indemnified in such circumstances, and
the Department has added the phrase ``except for violations or
prohibited transactions caused by an error, misrepresentation, or
misconduct of a plan fiduciary or other party hired by the plan
fiduciary who is independent of Credit Suisse AG'' to clause (3) of
Section I(k).
Finally, the Applicant requests a modification to the requirement
in Section I(k) that provides that any agreements between CSAG, Credit
Suisse Affiliated QPAMs, and their ERISA-covered plan and IRA clients
allow for such clients to terminate or withdraw from their arrangements
with CSAG or the Credit Suisse Affiliated QPAMs without any fees,
penalties or other charges. The Applicant requests that such
requirement only apply to separately managed accounts and only with
respect to undisclosed or unreasonable fees, penalties, or charges for
such termination or withdrawal. The Applicant represents that all such
agreements have reasonable termination provisions, such as 30 days'
advance notice, and in the case of separately managed accounts, a plan
fiduciary can remove assets from an asset manager's control
immediately, in any event. However, the Applicant informs the
Department that in a pooled fund, depending on the investment strategy,
a longer withdrawal period may be required to protect other investors
or address limited liquidity in fund assets, which has been fully
disclosed and agreed to by plan fiduciaries. Additionally, the
Applicant adds that there may be redemption fees in a pooled fund,
which are directed at preventing market timing in order to protect
other investors in the fund. The Department notes that the language in
Section I(k) was not intended to prevent reasonable fees which are
intended to protect other investors or prevent market abuses, but
rather to cover fees or charges that could otherwise discourage a
client from moving to a new asset manager. Therefore, the Department
has added clarifying language at the end of clause (5) of Section I(k)
that excepts ``reasonable fees, appropriately disclosed in advance,
that are specifically designed to prevent generally recognized abusive
investment practices or specifically designed to ensure equitable
treatment
[[Page 68723]]
of all investors in a pooled fund in the event such withdrawal or
termination may have adverse consequences for all other investors,
provided that such fees are applied consistently and in like manner to
all such investors.''
8. Section I(m).
The Applicant requests confirmation that, in accordance with
Section I(m), notice to interested persons is required to be sent only
to ERISA-covered plans and IRAs with respect to which PTE 84-14 may be
used and that were clients as of the date the proposal was published in
the Federal Register. The Department confirms this understanding.
9. Section I(n).
The Applicant asks for clarification in three areas with respect to
Section I(n). First, the Applicant requests clarification that a Credit
Suisse Affiliated QPAM will not fail to meet the terms of the exemption
solely because a different Credit Suisse Affiliated QPAM or a Credit
Suisse Related QPAM fails to satisfy a condition for relief under this
exemption. The Department clarifies that a Credit Suisse Affiliated
QPAM will not fail to meet the terms of the exemption if a Credit
Suisse Related QPAM fails to satisfy a condition for relief. However,
as originally drafted, if one Credit Suisse Affiliated QPAM failed to
meet the terms of the exemption, all other Credit Suisse Affiliated
QPAMs could be disqualified. After further consideration, the
Department decided that it is not appropriate to jeopardize the
transactions of ERISA-covered plans and IRAs that have no relationship
to the particular Credit Suisse Affiliated QPAM that fails to meet a
condition. Therefore, the sentence in Section I(n) that reads, ``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'' has
been modified to read, ``A Credit Suisse Affiliated QPAM will not fail
to meet the terms of this exemption solely because a Credit Suisse
Related QPAM or a different Credit Suisse Affiliated QPAM fails to
satisfy a condition for relief under this exemption.''
Second, the Applicant requests clarification that if a Credit
Suisse Affiliated QPAM fails to meet the conditions of the exemption
for a particular transaction or a particular ERISA-covered plan or IRA,
such failure only precludes the Credit Suisse Affiliated QPAM's
reliance on the exemption for such transaction or ERISA-covered plan or
IRA for the period of non-compliance. The Department confirms the
Applicant's understanding and clarifies that, to the extent that the
conditions of PTE 84-14 are incorporated by reference into this
exemption, failure to satisfy a condition of PTE 84-14 will have the
same effect as it would if the Applicant was operating only under PTE
84-14. That is, the relief will not be available for a particular
transaction, as opposed to an absolute bar to use of the exemptive
relief for all future transactions. However, the conditions that are
unique to this individual exemption must be met in their entirety in
order for Credit Suisse Affiliated QPAMs or Credit Suisse Related QPAMs
to remain eligible for the relief in this exemption.
Third, the Applicant requests clarification that the failure of a
Credit Suisse Related QPAM or CSAG to satisfy a condition of this
exemption will not cause a Credit Suisse Related QPAM to lose the
relief herein. The Department clarifies that a Credit Suisse Related
QPAM will not lose the relief in this exemption due to any failures of
another Credit Suisse Related QPAM or CSAG. However, if CSAG fails to
review the Audit Reports, as required by Subsection I(i)(7), CSAG will
jeopardize the availability of relief under this individual exemption
for all of the Credit Suisse Affiliated QPAMs.
Conclusion
After giving full consideration to the entire record, including the
written comments, subject to the Department's responses thereto, the
Department has decided to grant a temporary exemption, as modified. The
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 and expire
one year from the date of publication in the Federal Register.
This exemption is granted on a temporary basis to accommodate
requests for a public hearing on whether to grant longer term relief
without risking the immediate loss of exemptive relief upon entry of a
judgment of conviction. This exemption will prevent disruptions in
retirement plan investments while a final determination is made on the
Credit Suisse Affiliated QPAM's and the Credit Suisse Related QPAM's
ability to serve retirement plan clients under PTE 84-14. At the same
time that the Department is issuing this exemption, it is also
publishing a proposed exemption for longer term relief and a notice of
a public hearing on whether to grant such longer term relief to the
Credit Suisse Affiliated QPAMs and the Credit Suisse Related QPAMs.
The complete application file is available for public inspection in
the Public Disclosure Room of the Employee Benefits Security
Administration, Room N-1515, U.S. Department of Labor, 200 Constitution
Avenue NW., Washington, DC 20210.
For a more complete statement of the facts and representations
supporting the Department's decision to grant this exemption, refer to
the proposed exemption published in the Federal Register on September
3, 2014 at 79 FR 52365.
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 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) In accordance with section 408(a) of ERISA and section
4975(c)(2) of the Code, the Department makes the following
determinations: The exemption is administratively feasible, the
exemption is in the interests of the plan and of its participants and
beneficiaries, and the exemption is protective of the rights of
participants and beneficiaries of the plan;
(3) The exemption is supplemental to, and not in derogation of, any
other provisions of ERISA, 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 availability of this exemption is subject to the express
condition that the material facts and representations contained in the
application accurately
[[Page 68724]]
describe all material terms of the transaction which is the subject of
the exemption.
Accordingly, the following exemption is granted under the authority
of section 408(a) of ERISA 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):
Exemption \3\
---------------------------------------------------------------------------
\3\ For purposes of this 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
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 \4\ notwithstanding
the Conviction (as defined in Section II(c)),\5\ provided the following
conditions are satisfied:
---------------------------------------------------------------------------
\4\ 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).
\5\ 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, agents other than Credit
Suisse AG, and employees 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 subject to Part 4 of Title I of ERISA (an ERISA-covered plan) or
section 4975 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) A Credit Suisse Affiliated QPAM will not use its authority or
influence to direct an ``investment fund'' (as defined in Section VI(b)
of PTE 84-14) that is subject to ERISA and managed by such Credit
Suisse Affiliated QPAM to enter into any transaction with Credit Suisse
AG or engage Credit Suisse AG to provide additional services to such
investment fund, for a direct or indirect fee borne by such 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) Each Credit Suisse Affiliated QPAM will ensure that none of its
employees or agents, if any, that were 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)
subject to ERISA and managed by such Credit Suisse Affiliated QPAMs;
(h)(1) Each Credit Suisse Affiliated QPAM immediately develops,
implements, maintains, and follows written policies (the Policies)
requiring and reasonably designed to ensure that: (i) The asset
management decisions of the Credit Suisse Affiliated QPAMs are
conducted independently of Credit Suisse AG's management and business
activities; (ii) the Credit Suisse Affiliated QPAM fully complies with
ERISA's fiduciary duties and ERISA and the Code's prohibited
transaction provisions and does not knowingly participate in any
violations of these duties and provisions with respect to ERISA-covered
plans and IRAs; (iii) the Credit Suisse Affiliated QPAM does not
knowingly participate in any other person's violation of ERISA or the
Code with respect to ERISA-covered plans and IRAs; (iv) any filings or
statements made by the Credit Suisse Affiliated QPAM to regulators,
including but not limited to, the Department of Labor, the Department
of the Treasury, the Department of Justice, and the Pension Benefit
Guaranty Corporation, on behalf of ERISA-covered plans or IRAs are
materially accurate and complete, to the best of such QPAM's knowledge
at that time; (v) the Credit Suisse Affiliated QPAM does not make
material misrepresentations or omit material information in its
communications with such regulators with respect to ERISA-covered plans
or IRAs, or make material misrepresentations or omit material
information in its communications with ERISA-covered plan and IRA
clients; (vi) the Credit Suisse Affiliated QPAM complies with the terms
of this exemption; and (vii) any violations of or failure to comply
with items (ii) through (vi) are corrected promptly upon discovery and
any such violations or compliance failures not promptly corrected are
reported, upon discovering the failure to promptly correct, in writing
to appropriate corporate officers, the head of Compliance and the
General Counsel of the relevant Credit Suisse Affiliated QPAM, the
independent auditor responsible for reviewing compliance with the
Policies, and a fiduciary of any affected ERISA-covered plan or IRA
where such fiduciary is independent of Credit Suisse AG; however, with
respect to any ERISA-covered plan or IRA sponsored by an ``affiliate''
(as defined in Section VI(d) of PTE 84-14) of Credit Suisse AG or
beneficially owned by an employee of Credit Suisse AG or its
affiliates, such fiduciary does not need to be independent of Credit
Suisse AG; Credit Suisse Affiliated QPAMs will not be treated as having
failed to develop, implement, maintain, or follow the Policies,
provided that they correct any instances of noncompliance promptly when
discovered or when they reasonably should have known of the
noncompliance (whichever is earlier), and provided that they adhere to
the reporting requirements set forth in this item (vii);
(2) Each Credit Suisse Affiliated QPAM immediately develops and
implements a program of training (the Training), conducted at least
annually for relevant Credit Suisse Affiliated QPAM asset management,
legal, compliance, and internal audit personnel; the Training shall be
set forth in the Policies and, at a minimum, covers the Policies, ERISA
and Code compliance (including applicable fiduciary duties and the
prohibited transaction provisions) and ethical conduct, the
consequences for not complying with the conditions of this exemption,
(including the loss of the exemptive relief provided herein), and
prompt reporting of wrongdoing;
(i)(1) Each Credit Suisse Affiliated QPAM submits to an audit by an
independent auditor, who has been prudently selected and who has
appropriate technical training and proficiency with ERISA to evaluate
the adequacy of, and compliance with, the Policies and Training
required in paragraph (h); the audit requirement must be incorporated
in the Policies and the first of the audits must be completed no later
than ten (10) months after the date of Conviction. The audit must cover
the first six-month period that begins on the date of Conviction; under
the terms of the Policies, the second audit must cover the following
corresponding six-month period and be
[[Page 68725]]
completed no later than four (4) months after the period to which the
audit applies;
(2) The auditor's engagement shall specifically require the auditor
to determine whether each Credit Suisse Affiliated QPAM has developed,
implemented, maintained, and followed Policies in accordance with the
conditions of this exemption and developed and implemented the
Training, as required herein;
(3) The auditor's engagement shall specifically require the auditor
to test 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 QPAM
to which the audit applies 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 the respective Credit Suisse Affiliated QPAM's 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 of the respective
Credit Suisse Affiliated QPAM shall be promptly addressed by such
Credit Suisse Affiliated QPAM, and any actions taken by such Credit
Suisse Affiliated QPAM to address such recommendations shall be
included in an addendum to the Audit Report. Any determinations by the
auditor that the respective Credit Suisse Affiliated QPAM has
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 the respective Credit Suisse
Affiliated QPAM 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. Upon request, the auditor shall provide OED
with all of the relevant workpapers reflecting any instances of
noncompliance. The workpapers shall include an explanation of any
corrective or remedial actions taken by the respective Credit Suisse
Affiliated QPAM;
(6) With respect to each Audit Report, an executive officer of the
Credit Suisse Affiliated QPAM to which the Audit Report applies
certifies in writing, under penalty of perjury, that the officer has
reviewed the Audit Report and this exemption; addressed, corrected, or
remediated 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) An executive officer of Credit Suisse AG reviews the Audit
Report for each Credit Suisse Affiliated QPAM and certifies in writing,
under penalty of perjury, that such officer has reviewed each Audit
Report;
(8) Each Credit Suisse Affiliated QPAM provides its certified Audit
Report to the Department's Office of Exemption Determinations (OED),
Room N-5700, 200 Constitution Avenue NW., Washington, DC 20210, no
later than 30 days following its completion, and each Credit Suisse
Affiliated QPAM makes its Audit Report unconditionally available for
examination by any duly authorized employee or representative of the
Department, other relevant regulators, and any fiduciary of an ERISA-
covered plan or IRA, the assets of which are managed by such 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) Effective from the date of publication of this exemption in the
Federal Register, with respect to each ERISA-covered plan or IRA for
which a Credit Suisse Affiliated QPAM provides asset management or
other discretionary fiduciary services, each Credit Suisse Affiliated
QPAM agrees: (1) To comply with ERISA and the Code, as applicable to
the particular ERISA-covered plan or IRA, and refrain from engaging in
prohibited transactions; (2) not to waive, limit, or qualify the
liability of the Credit Suisse Affiliated QPAM for violating ERISA or
the Code or engaging in prohibited transactions; (3) not to require the
ERISA-covered plan or IRA (or sponsor of such ERISA-covered plan or
beneficial owner of such IRA) to indemnify the Credit Suisse Affiliated
QPAM for violating ERISA or engaging in prohibited transactions, except
for violations or prohibited transactions caused by an error,
misrepresentation, or misconduct of a plan fiduciary or other party
hired by the plan fiduciary who is independent of Credit Suisse AG; (4)
not to restrict the ability of such ERISA-covered plan or IRA to
terminate or withdraw from its arrangement with the Credit Suisse
Affiliated QPAM; and (5) not to impose any fees, penalties, or charges
for such termination or withdrawal with the exception of reasonable
fees, appropriately disclosed in advance, that are specifically
designed to prevent generally recognized abusive investment practices
or specifically designed to ensure equitable treatment of all investors
in a pooled fund in the event such withdrawal or termination may have
adverse consequences for all other investors, provided that such fees
are applied consistently and in like manner to all such investors.
Within six (6) months of the date of publication of this exemption in
the Federal Register, each Credit Suisse Affiliated QPAM will provide a
notice to such effect to each ERISA-covered plan or IRA for which a
Credit Suisse Affiliated QPAM provides asset management or other
discretionary fiduciary services;
(l) Effective from the date of publication of this exemption in the
Federal Register, each Credit Suisse Affiliated QPAM will maintain
records necessary to demonstrate that the conditions of this exemption
have been met for six (6) years following the date of any transaction
for which such Credit Suisse Affiliated QPAM relies 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, received a notice of the proposed exemption along with a
separate summary describing the facts that led to the Conviction, which
had 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 exemption solely because a Credit Suisse Related QPAM or a
different Credit Suisse Affiliated 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 exemption solely because Credit
[[Page 68726]]
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) \6\ 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 the parent entity, Credit Suisse AG.
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\6\ 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 that has
acknowledged in a written management agreement that it is a
fiduciary with respect to each plan that has retained the QPAM.
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(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.
Effective Date: This 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 and expire one year from the date of publication in the
Federal Register.
Signed at Washington, DC, this 12th day of November, 2014.
Lyssa Hall,
Director of Exemption Determinations, Employee Benefits Security
Administration, U.S. Department of Labor.
[FR Doc. 2014-27172 Filed 11-17-14; 8:45 am]
BILLING CODE 4510-29-P