Notice of Exemption Involving Credit Suisse AG (Hereinafter, either Credit Suisse AG or the Applicant) Located in Zurich, Switzerland, 59817-59828 [2015-24919]

Agencies

• Employee Benefits Security Administration
• DEPARTMENT OF LABOR

[Federal Register Volume 80, Number 191 (Friday, October 2, 2015)]
[Notices]
[Pages 59817-59828]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-24919]


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DEPARTMENT OF LABOR

Employee Benefits Security Administration

[Prohibited Transaction Exemption 2015-14; Application No. D-11837]


Notice of 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 exemption.

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SUMMARY: This document contains a notice of 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 affects 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 (PTE 84-14).\1\
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    \1\ 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).

DATES: Effective Date: This exemption is effective from November 18, 
2015 (the first date following the last day of relief provided by PTE 
2014-11) through: November 20, 2019 (the date that is five years from 
the date of the Conviction, described below) with respect to Credit 
Suisse Affiliated QPAMs; and November 20, 2024 (the date that is ten 
years from the date of the Conviction) with respect to Credit Suisse 
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Related QPAMs.

FOR FURTHER INFORMATION CONTACT: Scott Ness, Office of Exemption 
Determinations, Employee Benefits Security Administration, U.S. 
Department of Labor, telephone (202) 693-8561. (This is not a toll-free 
number).

SUPPLEMENTARY INFORMATION:

General Information Regarding the QPAM Class Exemption

    A QPAM is a ``Qualified Professional Asset Manager.'' By 
definition, QPAMs are large regulated banks, savings and loan 
associations, insurance companies or federally registered investment 
advisors that meet certain standards of size and independence. PTE 84-
14 permits these independent asset managers to engage in a variety of 
arm's length transactions with parties in interest with respect to the 
plans they

[[Page 59818]]

manage that would otherwise be prohibited. The scope of Part I of the 
class exemption is limited, such that QPAMs cannot: Engage in self-
dealing transactions; act in their own interest or the interest of 
their affiliates; and/or engage in transactions with parties that are 
in a position to affect their independent judgment, such as persons 
with ownership interests in the QPAM.
    PTE 84-14 primarily permits QPAMs to engage in various arm's length 
transactions with parties in interest, and obviates the need to 
undertake time-consuming compliance checks for parties-in-interest, 
forego investment opportunities, or seek an individual exemption from 
the Department for each transaction. The conditions in the exemption 
were designed to ensure that the transactions covered therein are 
protective of, and in the interest of, affected plans.
    The scope of the anti-criminal provision set forth in section I(g) 
of PTE 84-14 is very broad and covers entities with various 
relationships to a convicted entity. When one of these entities is 
convicted of specified crimes, the related QPAMs lose the ability to 
rely on the class exemption for 10 years following the date of the 
conviction, absent an individual exemption.
    THE FIRST PROPOSED EXEMPTION: On September 3, 2014, the Department 
of Labor (the Department) published a proposed exemption in connection 
with Application No. D-11819, at 79 FR 52365 (the First Proposed 
Exemption), for certain entities with specified relationships to Credit 
Suisse AG, to continue to rely upon the relief provided by PTE 84-14, 
notwithstanding that a judgment of conviction (the 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, was pending in the District Court for the Eastern 
District of Virginia in Case Number 1:14-cr-188-RBS. The Department 
received ten comments and four requests for a hearing regarding that 
notice.
    In anticipation that the judgment of conviction would be entered on 
November 21, 2014 (the Conviction Date), and recognizing that 
additional relevant information could be provided at the hearing, the 
Department issued three notices in the Federal Register, on November 
18, 2014: A temporary final exemption notice (the Temporary Final 
Exemption (79 FR 68716)), a second proposed exemption notice (the 
Second Proposed Exemption (79 FR 68712)), and a hearing notice (the 
Hearing Notice (79 FR 68711)).
    THE TEMPORARY FINAL EXEMPTION: The Temporary Final Exemption became 
effective on the Conviction Date and will last approximately one year. 
Among other things, the exemption allowed Credit Suisse QPAMs to 
continue to engage in transactions covered by the QPAM Class Exemption, 
subject to enhanced conditions, while the Department considered the 
testimony and additional information provided at, and subsequent to, 
the hearing.
    THE SECOND PROPOSED EXEMPTION: The Second Proposed Exemption, which 
correlates to this notice, described relief that was similar to the 
Temporary Final Exemption, but with a longer duration. The Department 
issued the Second Proposed Exemption after concluding that it would be 
beneficial to the Department's review to obtain further information 
regarding the concerns raised by commenters to the First Proposed 
Exemption.
    THE HEARING: The Hearing Notice informed interested persons that 
the Department would hold a hearing on January 15, 2015, to discuss 
issues raised by commenters following publication of the First Proposed 
Exemption. The hearing was intended to solicit additional information 
regarding whether the Second Proposed Exemption was in the interest of, 
and protective of, plans and IRAs, and administratively feasible.
    THIS NOTICE (THE SECOND FINAL EXEMPTION and THE REVOCATION): This 
document sets forth the Second Final Exemption, which relates to the 
Second Proposed Exemption. The record for this exemption includes the 
hearing transcript and hearing-related submissions, as well as comments 
received in connection with the Second Proposed Exemption. As 
commenters at the hearing raised issues related to the First Proposed 
Exemption, the record for this Notice also incorporates comments with 
respect to such exemption.
    This Second Final Exemption covers the same transactions as those 
described in the Temporary Exemption, but contains enhanced conditions 
for the protection of plans and their participants and beneficiaries.

Written Comments, Hearing Testimony, and Supplements

    The record for this notice includes testimony and supplemental 
materials from the hearing, comments received in connection with the 
First Proposed Exemption, as well as comments received in connection 
with the publication of the Second Proposed Exemption. The testimony at 
the hearing and supplemental materials were mixed, with some speakers 
expressing support for granting an exemption and others expressing 
opposition. The hearing produced approximately 218 pages of testimony 
by 18 speakers, as well as supplemental materials.
    The Department received six written comments with respect to the 
Second Proposed Exemption.\2\ Four of the comments supported the Second 
Proposed Exemption. Included in the six comments is the Applicant's 
written comment, which requested certain changes and clarifications 
with respect to the operative language of the exemption, and which 
provided additional information in support of the requested changes and 
in response to issues raised during the public hearing. The Applicant 
previously submitted a comment with respect to the First Proposed 
Exemption that the Department considered in the preamble to the 
Temporary Final Exemption, published in the Federal Register at 79 FR 
68716 on November 18, 2014. That comment was reflected, where 
appropriate, in the Temporary Final Exemption and the Second Proposed 
Exemption. The discussion of the Applicant's comment to the First 
Proposed Exemption, and the Department's response thereto, will not be 
repeated herein.
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    \2\ The commenters include the American Benefits Council, the 
Securities Industry and Financial Markets Association (SIFMA), two 
members of the general public (one of whom was anonymous), the 
Applicant, and the independent auditor.
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    The sixth and final comment is a statement from the independent 
auditor that sought certain clarifications with respect to the 
operative language of the exemption. The comments received in 
connection with the hearing, the First Proposed Exemption, and the 
Second Proposed Exemption are described below. The Department has not 
reproduced the comments in their entirety, but has summarized the 
information. Complete copies of the transcript from the hearing and 
supplemental submissions can be found at www.regulations.gov or by 
visiting EBSA's Public Disclosure Room.

Comments Relating to the First Proposed Exemption and the Hearing

    1. Exemption Standards for Relief.
    A. Several commenters sought a denial of the requested exemption on 
the grounds that a denial would punish Credit Suisse AG and/or deter 
future criminal behavior by Credit Suisse AG.
    DEPARTMENT'S RESPONSE: The Department notes that relief under this 
exemption is contingent upon Credit

[[Page 59819]]

Suisse AG having not provided 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 acting as a QPAM for ERISA-
covered plans or IRAs. Further, the exemption is structured to insulate 
the Credit Suisse QPAMs from Credit Suisse AG. In this regard, the 
exemption requires that each Credit Suisse Affiliated QPAM immediately 
develop, implement, maintain, and follow written policies (the 
Policies) requiring and reasonably designed to ensure that, among other 
things: The asset management decisions of the Credit Suisse Affiliated 
QPAM are conducted independently of Credit Suisse AG's management and 
business activities; and 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.
    Furthermore, the Department notes that the record upon which 
exemptive relief was proposed and is herein granted suggests that 
neither the Credit Suisse Affiliated QPAMs nor the Credit Suisse 
Related QPAMs were involved in the conduct underlying the Conviction. 
The record also supports a finding that the Credit Suisse Affiliated 
QPAMs and the Credit Suisse Related QPAMs (the Credit Suisse QPAMs) 
operate separately and independently of Credit Suisse AG with respect 
to their asset management decisions. Based on the facts of this case, 
the beneficial nature of the covered transactions, and the conditions 
imposed by the exemption, the Department believes that a full denial of 
exemptive relief is not warranted. The exemption requires plans with 
assets managed by Credit Suisse Affiliated QPAMs to be alerted to the 
Conviction. In this regard, the Credit Suisse Affiliated QPAMs must 
provide a notice of the 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 
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.
    The exemption also facilitates the ability of such plans to 
transfer assets managed by a Credit Suisse Affiliated QPAM to non-
Credit Suisse asset managers, without the imposition of an additional 
fee, penalty or charge, with only very narrow exceptions designed to 
prevent abusive investment practices and protect all investors in 
pooled funds in which such plans invest. In addition, each Credit 
Suisse Affiliated QPAM must agree not to waive, limit, or qualify the 
liability of the Credit Suisse Affiliated QPAM, or otherwise require 
indemnification of the QPAM, for violating ERISA or the Code or 
engaging in prohibited transactions.
    The Department stresses that the act of selecting and retaining an 
investment manager service provider is a fiduciary act; and that a plan 
fiduciary is under a continuing duty to monitor the service provider's 
performance at reasonable intervals. Fiduciaries (including investment 
managers) should be reviewed by the appointing fiduciaries in such a 
manner as may be reasonably expected to ensure that their performance 
has been in compliance with the terms of the plan and statutory 
standards (e.g., prudence, exclusive benefit, and prohibited 
transactions rules).\3\ In this regard, the Department has endeavored 
to craft a set of conditions that should reduce concern about the 
criminal activities that gave rise to the Conviction. However, a 
recurrence of such activities would certainly be cause for a prudent 
fiduciary to reconsider the prudence of employing the Credit Suisse 
Affiliated QPAMs as service providers to ERISA-covered plans.
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    \3\ See 29 CFR 2509.75-8.
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    B. Another commenter suggested that the Department should require 
that the Credit Suisse QPAMs demonstrate a track record of legal 
compliance before an exemption is issued.
    DEPARTMENT'S RESPONSE: Credit Suisse AG, and not the Credit Suisse 
QPAMs, was subject to the Conviction. Importantly, as discussed above, 
the record contains no evidence that the Credit Suisse QPAMs were 
involved in the criminal activities that gave rise to the Conviction. 
In addition, the Department is not aware of any evidence that the 
investment management activities of the Credit Suisse QPAMs were 
affected by Credit Suisse AG's criminal activities. The Department has 
also shortened the duration of this exemption to five years with 
respect to the Credit Suisse Affiliated QPAMs, as discussed below, such 
that the Credit Suisse Affiliated QPAMs must be prepared to 
demonstrate, among other things, compliance with the terms of this 
exemption, prior to receiving a further extension of exemptive relief 
for transactions described in PTE 84-14.
    The exemption is focused on ensuring each QPAM's continued legal 
compliance. In this regard, the exemption requires that an annual 
exemption audit be performed by an independent fiduciary who is 
experienced in ERISA and the transactions covered by the exemption. The 
auditor must annually determine whether each Credit Suisse Affiliated 
QPAM has developed, implemented, maintained, and followed Policies 
requiring and reasonably designed to ensure that, among other things: 
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; (ii) 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; (iii) 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; (iv) 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; (v) the Credit Suisse 
Affiliated QPAM complies with the terms of this exemption; and (vi) 
violations of, or failure to comply with the terms above, 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

[[Page 59820]]

where such fiduciary is independent of Credit Suisse AG.
    Further, each year, the auditor must determine whether each Credit 
Suisse Affiliated QPAM has developed and implemented 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 must 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.
    C. One other commenter suggested that the Department take a 
stronger role in its position as a regulator by declining Credit 
Suisse's exemption request.
    DEPARTMENT'S RESPONSE: The failure of the Credit Suisse Affiliated 
QPAMs to meet the conditions of PTE 84-14 and subsequent need to 
request an individual administrative exemption from the Department 
provides the Department with the opportunity to enhance the safeguards 
for plans and their participants and beneficiaries by imposing 
stringent conditions on the operations of the QPAMs for the next ten 
years, which would not otherwise exist. As a regulator, the Department 
will proactively investigate the operations of the Credit Suisse QPAMs, 
will review each exemption audit submitted by the independent auditor, 
and take whatever action it deems necessary to ensure that affected 
plans and IRAs are adequately protected. Finally, this exemption is 
unavailable to the extent Credit Suisse AG or the Credit Suisse QPAMs 
have made a material misrepresentation, or to the extent the Credit 
Suisse QPAMs fail to satisfy the terms herein. Moreover, the Department 
may take steps to revoke this (or any) exemption if, once the exemption 
takes effect, changes in circumstances, including changes in law or 
policy, occur which call into question the continuing validity of the 
Department's original findings concerning the exemption.\4\
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    \4\ See DOL Reg. Sec. 2570.50.
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    2. Adequacy of Safeguards.
    A. Some commenters to the First Proposed Exemption and at the 
hearing stated that the First Proposed Exemption did not contain 
adequate safeguards to protect the rights of participants and 
beneficiaries of plans. For instance, one commenter suggested that the 
audit should be extended to other controversial aspects of the 
financial industry, such as CEO awards and incentives. Other commenters 
suggested that no set of conditions would be adequate to protect plans 
and their participants and beneficiaries due to past deficiencies 
within the Credit Suisse organization, the severity of problems within 
the Credit Suisse organization, and the lack of isolation of the Credit 
Suisse QPAMs from the rest of the Credit Suisse organization.
    DEPARTMENT'S RESPONSE: As noted above, Credit Suisse AG, and not 
the Credit Suisse QPAMs, was subject to the Conviction. The Department 
is not aware of any evidence that the investment management activities 
of the Credit Suisse QPAMs were affected by Credit Suisse's criminal 
activities. As described above, the relief set forth in the exemption 
is contingent upon an auditor's determination that the investment and 
compliance operations of each Credit Suisse Affiliated QPAM is isolated 
from Credit Suisse AG. The audit is designed to preserve the integrity 
of each Credit Suisse Affiliated QPAM, by ensuring that the appropriate 
Credit Suisse Affiliated QPAM personnel annually receive rigorous 
training on fiduciary duties and ethical conduct. In addition, each 
Credit Suisse Affiliated QPAM is generally required to permit plans to 
transfer their assets to another asset manager without the imposition 
on the plan of an additional fee, penalty or charge. Also, the QPAMs 
may not require the plan to insulate the QPAM from liability for 
violating ERISA or the Code or engaging in prohibited transactions.
    3. Compliance Culture.
    A. Commenters additionally described a longstanding and pervasive 
culture of wrongdoing within the Credit Suisse organization, including 
knowledge of corporate wrongdoing by senior executives. Commenters 
further suggested that the criminal behavior of Credit Suisse AG 
indicates that any assurances of legal compliance by the Credit Suisse 
Affiliated QPAMs given to the Department lacked credibility. Commenters 
brought to the Department's attention the participation of Credit 
Suisse Asset Management Limited, United Kingdom (CSAM UK) in knowingly 
violating federal sanctions laws by facilitating money laundering. 
Finally, commenters also identified several civil controversies 
involving the Credit Suisse QPAMs, including specifically Credit 
Suisse's involvement in certain real estate financing transactions 
related to residential and resort planned communities in various 
locations around the country.\5\
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    \5\ See, e.g., Claymore Holdings LLC v. Credit Suisse AG, Cayman 
Islands Branch and Credit Suisse Securities (USA) LLC, case No. DC-
13-07858, in the 134th Judicial District Court of Dallas County, 
Texas; Credit Suisse Loan Funding LLC and Credit Suisse AG, Cayman 
Islands Branch v. Highland Crusader Offshore Partners LP, et al., 
case No. 652492/2013 in the Supreme Court of the State of New York, 
County of New York; and Timothy L. Blixseth v. Credit Suisse AG, 
Credit Suisse Group AG, Credit Suisse Securities (USA) LLC, Credit 
Suisse AG, Cayman Islands Branch, et. al., case No. 12-CV-00393-PAB-
KLM in the U.S. District Court, District of Colorado.
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    DEPARTMENT'S RESPONSE: The Department believes that the record 
associated with this exemption supports a finding that the Credit 
Suisse QPAMs may continue to engage in transactions that are in the 
interests of plans and IRAs under enhanced scrutiny from the Department 
and pursuant to additional conditions imposed under the exemption, as 
discussed above and below. Additionally, the Department intends to 
monitor the Credit Suisse QPAMs' compliance with the conditions for 
this exemption, and has limited the duration of the exemption to five 
years, with respect to the Credit Suisse Affiliated QPAMs.\6\ This 
five-year limitation is intended to reinforce the central importance of 
compliance with both the letter and spirit of the exemption's 
conditions, particularly including the mandated policies and 
procedures. Although the Department is currently satisfied that the 
Credit Suisse Affiliated QPAMs are insulated from Credit Suisse, the 
Department believes plans and IRAs will be further protected to the 
extent the Department re-evaluates Credit Suisse's compliance with the 
exemption as part of any consideration as to whether to grant more 
permanent relief for the Credit Suisse Affiliated QPAMs.
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    \6\ The Department has determined not to limit relief in this 
manner to the Credit Suisse Related QPAMs because these QPAMs are 
not, in general terms, controlled by Credit Suisse.
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    The Department does not currently view the private controversies 
described above, as grounds to deny the requested exemption. However, 
the fiduciary of a plan or IRA should consider the involvement of the 
Credit Suisse QPAMs in a private controversy (as well as a criminal 
investigation) in its determination as to whether to hire and/or retain 
a Credit Suisse QPAM as a service provider.
    4. Importance of Enforcing Penalties.
    A. Some commenters argued that Section I(g) of PTE 84-14 clearly 
states that a conviction will bar an entity from serving as a QPAM. 
Accordingly, they contend that it is important to enforce

[[Page 59821]]

mandatory penalties in order to deter future misconduct.
    DEPARTMENT'S RESPONSE: Section I(g) of PTE 84-14 does not bar an 
applicant from seeking an individual exemption for an asset manager to 
continue to act as a QPAM following the criminal conviction of its 
affiliate. The stated purpose of Section I(g) of the QPAM Class 
Exemption is set forth in the original proposal for PTE 84-14 which 
states, ``A QPAM, and those who may be in a position to influence its 
policies, are expected to maintain a high standard of integrity.'' \7\ 
The Department is of the view that, based on the record, the Credit 
Suisse QPAMs are capable of maintaining a high standard of integrity; 
and the conditions of this exemption are sufficient for the Department 
and other independent parties to verify that this high standard of 
integrity is met.
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    \7\ See 47 FR 56945, 56947 (December 21, 1982).
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    B. Commenters also considered the approximately $2.6 billion in 
penalties paid in connection with the Conviction to be insufficient and 
found it problematic that the party ultimately responsible for paying 
such penalties is the shareholders, rather than the individuals 
involved in the criminal conduct.
    DEPARTMENT'S RESPONSE: The Department had no role in determining 
the appropriateness or amount of the penalties assessed in connection 
with the conviction of Credit Suisse. The Plea Agreement between Credit 
Suisse AG and the Office of the U.S. Attorney for the Eastern District 
of Virginia and the Tax Division of the Department of Justice states 
that the sentence imposed, which comprised a $2,000,000,000 resolution 
with the Department of Justice, was the ``appropriate disposition of 
the Information'' \8\ and was comprised of: A criminal fine in the 
amount of $1,333,500,000; \9\ restitution to the Internal Revenue 
Service of $666,500,000, representing estimated pecuniary losses from 
the criminal offense; and a mandatory special assessment of $400, which 
was to be paid to the Clerk of Court. In addition, Credit Suisse also 
paid $715,000,000 and $100,000,000 in civil penalties, respectively, to 
the New York Department of Financial Services and the U.S. Federal 
Reserve Board.
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    \8\ According to the Plea Agreement between the Department of 
Justice and Credit Suisse AG, applicable sentencing guidelines 
called for a range of $1,333,000,000 to $2,666,000,000, based on, 
among other things, the size of the financial loss to the U.S. 
Treasury, the size of Credit Suisse, and the participation of high 
level personnel in the conduct.
    \9\ This amount included $196,511,014 in fines already paid by 
Credit Suisse pursuant to the Order Instituting Administrative and 
Cease and Desist Proceedings with the SEC, dated February 21, 2014 
(the SEC Order). The SEC Order required payments by Credit Suisse of 
$82,170,990 in disgorgement of fees, $64,340,024 in prejudgment 
interest, and a $50,000,000 penalty.
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    C. Additionally, some commenters suggested that a permanent 
exemption would indicate the Department's tolerance of cutting corners 
and criminal wrongdoing by powerful financial institutions at the 
expense of consumers and the law.
    DEPARTMENT'S RESPONSE: The entities that may engage in the 
transactions permitted by this exemption did not participate in the 
criminal activity that is the subject of the Conviction. Moreover, the 
entity that did engage in the criminal conduct, Credit Suisse AG, has 
been subject to substantial penalties, including $2.6 billion paid in 
connection with the Conviction.
    However, after reviewing the entire record, the Department believes 
that plans would be further protected to the extent the relief set 
forth herein extends no longer than November 17, 2019, with respect to 
any Credit Suisse Affiliated QPAM. If a Credit Suisse Affiliated seeks 
to engage in a transaction described in PTE 84-14 beyond that date, the 
Applicant must re-apply for exemptive relief in a timely fashion. The 
Department notes that, in re-applying for exemptive relief, the 
Applicant should be prepared to demonstrate that the conditions of this 
exemption have been met. The Department's review of any such 
application may also extend to Credit Suisse AG's compliance with 
relevant laws and regulations throughout the duration of this 
exemption.
    D. Finally, some commenters suggested the Department has a role to 
play in enforcing criminal penalties for wrongdoing.
    DEPARTMENT'S RESPONSE: To the Department's knowledge, the criminal 
penalties imposed on Credit Suisse were appropriate and have been 
enforced. The Department's responsibility is to ensure that the 
conditions required for granting an exemption have been satisfied. In 
particular, prior to granting this exemption, the Department had to 
find that the exemption is in the interest of and protective of, 
affected plans and the participants of such plans, and administratively 
feasible. The Department has made these findings.
    5. Impact on Plans & Beneficiaries.
    A. Some of the commenters suggested that the Department should deny 
the exemption and force Credit Suisse to pay for any related costs to 
plans of moving to a new asset manager. Other commenters stated that 
the cost to plans would not be significant if the Department denied 
Credit Suisse's exemption application.
    DEPARTMENT'S RESPONSE: The Department does not view the costs 
identified by the Credit Suisse QPAMs, for affected plans and IRAs to 
locate and hire a new asset manager, as a sole compelling reason to 
grant this exemption. The Department does not believe, however, that 
the evidence supports a finding that plan fiduciaries should be 
compelled to move their business away from the Credit Suisse QPAMs if 
they choose not to do so. Instead, the Department has concluded that 
the best approach is to facilitate the plans' ability to withdraw their 
business should they choose to do so, while enhancing their protections 
should they choose to continue their business relationship with the 
Credit Suisse QPAMs. Accordingly, the exemption enables plan 
fiduciaries to terminate their investment management agreements with a 
Credit Suisse Affiliated QPAM without penalty.
    B. Two commenters suggested that the exemption would permit plans 
to enter into exotic or complex transactions that would otherwise not 
be customary for such plans or which would serve to harm the broader 
economy as well as Credit Suisse QPAMs' retiree clients.
    DEPARTMENT'S RESPONSE: The exemption permits a wide range of 
transactions between a plan and a party in interest, and does not 
identify the specific types of transactions that may be covered by the 
exemption. The exemption expressly does not relieve a fiduciary or 
other party in interest 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.
    6. Factual Issues.
    During the hearing, commenters also identified topics that they 
felt were not fully developed in the First Proposed Exemption. For 
instance, commenters questioned whether the Applicant identified all of 
the QPAMs that would be covered by this exemption. Commenters also 
questioned why Credit Suisse plan clients did not submit comments for 
the public record.
    DEPARTMENT'S RESPONSE: The Applicant was required to provide a list 
of all entities that were currently acting as Credit Suisse Affiliated 
QPAMs, as

[[Page 59822]]

well as a list of the entities that might fall into the category of 
Credit Suisse Related QPAMs. Such information was available and known 
by the Department before it published the First Proposed Exemption in 
the Federal Register at 79 FR 52365 on September 3, 2014.
    The Applicant was also required to, and did, notify all affected 
plans and Credit Suisse Related QPAMs of the First Proposed Exemption 
(Application No. D-11819), published in the Federal Register at 79 FR 
52365 on September 3, 2014, and of the Second Proposed Exemption 
(Application No. D-11837), published in the Federal Register at 79 FR 
68712 on November 18, 2014. The Applicant was further required to, and 
did, notify such plans and Related QPAMs of the public hearing held on 
January, 15, 2015. No plan clients submitted information in connection 
with any such notices, or filed objections to either the First Proposed 
Exemption or the Second Proposed Exemption.
    7. Auditor Independence.
    Some commenters were concerned that the auditor required as a 
condition of this exemption would not be truly independent. One 
commenter additionally proposed that the auditor be chosen by the 
Department.
    DEPARMENT'S RESPONSE: The Department imposes strict standards and 
requirements to ensure that an auditor is qualified and independent. 
Furthermore, if an applicant chooses an auditor that does not meet such 
requirements, the Department will require an applicant to select an 
appropriately independent and qualified auditor. With respect to this 
exemption, in order to strengthen the auditor's independence, the 
Department added new subsection I(i)(12), which is described below.
    8. Credit Suisse QPAMs' Capacity to Act as Fiduciary.
    A. Some commenters argued that Swiss bank secrecy laws undermine 
the integrity of the financial markets and would allow Credit Suisse 
QPAMs to continue to hide behind walls of secrecy if such QPAMs were 
accused of misusing plan assets.
    DEPARTMENT'S RESPONSE: The Department believes the scope of the 
audit ensures that the Credit Suisse QPAMs will not be able to hide 
behind Swiss bank secrecy laws. In particular, the granted exemption 
now requires that the Credit Suisse Affiliated QPAM grant the auditor 
unconditional access to its business, including, but not limited to: 
Its computer systems, business records, transactional data, workplace 
locations, training materials, and personnel.
    B. Some commenters presented testimony and written submissions 
arguing that Credit Suisse failed to exercise its fiduciary 
responsibilities with respect to Swiss bank accounts opened during the 
period around World War II in that many accounts were unilaterally 
closed by Credit Suisse. Another commenter argued that Credit Suisse's 
transgressions with respect to non-plan and IRA investors is analogous 
to plans and IRAs, so Credit Suisse should not be trusted with plan and 
IRA assets.
    DEPARTMENT'S RESPONSE: As noted above, under the terms of this 
exemption, Credit Suisse AG may not act as a QPAM on behalf of plans 
and IRAs. The commenters did not otherwise provide the Department any 
factual information with respect to transgressions by Credit Suisse 
QPAMs involving ERISA or IRA assets.

Comments Relating to the Second Proposed Exemption

Credit Suisse AG's Comment

    In its comment to the Second Proposed Exemption, the Applicant 
requests certain confirmations and/or clarifications regarding: (1) The 
scope of the condition found in Section I(f) of the Second Proposed 
Exemption prohibiting the Credit Suisse Affiliated QPAMs from entering 
into transactions with Credit Suisse AG or engaging Credit Suisse AG to 
provide certain services with respect to investment funds managed by 
such QPAMs; (2) the interaction between the Policies and Training 
requirements found in Section I(h) of the Second Proposed Exemption; 
(3) the scope of the audit requirement found in Section I(i) of the 
Second Proposed Exemption; (4) the scope of the requirements of Section 
I(k); and (5) the identity of the ERISA-covered plans and IRAs required 
to receive the notice described in Section I(m) of the Second Proposed 
Exemption. The Applicant's requests and the Department's responses are 
described below, in addition to a description of certain modifications 
to the Second Proposed Exemption made by the Department which are 
related to the Applicant's comment regarding the audit requirement.
    9. Section I(f).
    Section I(f) of the Second Proposed Exemption provides ``[a] Credit 
Suisse Affiliated QPAM will not use its authority or influence to 
direct an `investment fund' . . . 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.'' The Applicant requests 
confirmation that Section I(f) would not disallow a Credit Suisse 
Affiliated QPAM from trading in markets where Credit Suisse AG provides 
local subcustody services to an unaffiliated global custodian, where 
the Credit Suisse Affiliated QPAM has no control over the global 
custodian's selection of the local subcustodian. According to the 
Applicant, the unaffiliated global custodian engaged by a plan's named 
fiduciary, not the Credit Suisse Affiliated QPAM, selects and hires 
local subcustodians. However, the Applicant states that in some 
markets, Credit Suisse AG may be the only subcustodian available. 
According to the Applicant, to the extent that a Credit Suisse 
Affiliated QPAM enters into a transaction in a market where Credit 
Suisse AG has been selected as the local subcustodian, Credit Suisse AG 
might receive additional compensation from the global custodian.
    The Department declines to provide the confirmation requested 
above. 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'' a 
``transaction with'' Credit Suisse AG or ``provide additional services, 
for a fee borne by'' the investment fund.
    10. Section I(h)(2).
    Section I(h)(2) of the Second Proposed Exemption requires each 
Credit Suisse Affiliated QPAM to develop and implement Training 
described therein, that is ``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.'' The 
Applicant requests that the Department confirm that this condition 
requires the Policies to expressly provide for the Training, but that 
the actual Training materials may be separate from the Policies and 
need not be duplicated verbatim within the Policies.
    The Department stresses that although the actual Training materials 
need not be duplicated within the Policies, the Policies must provide 
for, and

[[Page 59823]]

incorporate, the Training requirement and provide specific details 
regarding the Training materials, including the identification of the 
particular training program and the primary training materials, the 
effective date(s) of any training manuals, and a brief outline of any 
information on the topics covered within the materials.
    11. Section I(i)(1).
    Section I(i)(1) of the Second Proposed Exemption requires that the 
Credit Suisse Affiliated QPAMs submit to an annual audit conducted by 
an independent auditor. The condition requires that ``the first of the 
audits must be completed no later than twelve (12) months after the 
date of Conviction and must cover the first six-month period that 
begins on the date of Conviction; all subsequent audits must cover the 
following corresponding twelve-month periods and be completed no later 
than six (6) months after the period to which [the audit] applies.'' 
The Applicant requests confirmation that the final audit need only 
cover the last six months of the disqualifying period under Section 
I(g) of PTE 84-14.
    The Department acknowledges that the timing of the audits required 
by the Second Proposed Exemption differs from the timing of the first 
two audits required by PTE 2014-11, which may cause confusion regarding 
compliance with the audit condition for this exemption. In this regard, 
the two audits required by PTE 2014-11, together, cover the twelve 
month period ending on November 20, 2015. The Department has modified 
the language in Section I(i)(1) of the Second Proposed Exemption, such 
that the initial audit required by this exemption will cover the twelve 
month period beginning on November 21, 2015, and ending on November 20, 
2016. Each subsequent audit will also start on November 21, and end on 
the following November 20. For consistency with PTE 2014-11, the 
Department has changed the effective date of this exemption, to 
November 18, 2015, which is the first day following the expiration of 
relief set forth in that exemption. Furthermore, the Department has 
modified Section I(i)(1) to provide that ``the audit requirement must 
be incorporated in the Policies . . . .''
    12. Additional Modifications to Section I(i)
    The Department notes that a robust, transparent audit conducted by 
a sophisticated independent auditor, for the entire period covered by 
this exemption, is an important condition for relief under this 
exemption. Therefore, the Department has modified the Second Proposed 
Exemption in order to ensure the independence and rigor of the audit, 
bolster the public record and ensure transparency,\10\ and enhance its 
ability to exercise oversight, if necessary. Therefore, the Department 
has added new Sections I(i)(2), (10), (11), and (12), and made certain 
clarifying changes to Section I(i)(4) (renumbered as Section I(i)(5)), 
as described below.
---------------------------------------------------------------------------

    \10\ The Department notes that, once it receives the information 
specified in Section I(i), including the additional information 
described below, such information will become a part of the 
administrative record and will be available to the public through 
the Department's Public Disclosure Room.
---------------------------------------------------------------------------

    The Department added new Section I(i)(2), in part, in order to 
ensure that the auditor would have access to all the information 
necessary to satisfy the requirements under this exemption, and to 
assist in achieving full transparency with regard to the Credit Suisse 
Affiliated QPAMs' Policies and Training and to their attempts to comply 
with this exemption. The Department's changes to Section I(i) described 
herein also reflect the assertions made by Credit Suisse at the public 
hearing on January 15, 2015, that the auditor(s) would have full, 
unfettered access. In this regard, the Department notes that the 
Applicant's assertions that the auditor would have unfettered access as 
of the date of the hearing constitute an essential part of the record, 
without which the Department would not have been able to make its 
required findings under section 408(a) of the Act. Newly added Section 
I(i)(2) provides that, ``[t]o the extent necessary for the auditor, in 
its sole opinion, to complete its audit and comply with the conditions 
for relief described herein, each Credit Suisse Affiliated QPAM and, if 
applicable, Credit Suisse AG, will grant the auditor unconditional 
access to its business, including, but not limited to: its computer 
systems, business records, transactional data, workplace locations, 
training materials, and personnel.''
    The Department has added new Section I(i)(10) to the exemption, in 
order to provide additional transparency and to allow the Department 
the opportunity to verify the independence of any auditor or other 
entity engaged by a Credit Suisse Affiliated QPAM in its efforts to 
comply with the requirements of this exemption. Specifically, new 
Section I(i)(10) provides that ``[e]ach Credit Suisse Affiliated QPAM 
and the auditor will submit to OED (A) any engagement agreement(s) 
entered into pursuant to the engagement of the auditor under this 
exemption, and (B) any engagement agreement entered into with any other 
entities retained in connection with such QPAM's compliance with the 
Training or Policies conditions of this exemption, no later than twelve 
(12) months after the date of the Conviction (and one month after the 
execution of any agreement thereafter).''
    The Department has added new Section I(i)(11), in order to provide 
the Department with additional oversight of, and to ensure the 
transparency of, the audit process. Section I(i)(11), as added, 
provides that ``[t]he auditor shall provide OED, upon request, all of 
the workpapers created and utilized in the course of the audit, 
including, but not limited to: the audit plan, audit testing, 
identification of any instances of noncompliance by the relevant Credit 
Suisse Affiliated QPAM, and an explanation of any corrective or 
remedial actions taken by the applicable Credit Suisse Affiliated 
QPAM.'' In connection with this addition, the Department has struck the 
last two sentences from Section I(i)(5) of the Second Proposed 
Exemption as such sentences are now subsumed in new Section I(i)(11).
    The Department has added new Section I(i)(12) in order to provide 
the Department with additional oversight in the selection of any 
replacement auditor and the ability to verify such replacement 
auditor's independence and qualifications. Newly added Section I(i)(12) 
provides that, in the event that the Applicant contemplates replacing 
the current auditor, ``Credit Suisse AG must notify the Department at 
least 30 days prior to any substitution of an auditor, except that no 
such replacement will meet the requirements of this paragraph unless 
and until Credit Suisse AG demonstrates to the Department's 
satisfaction that such new auditor is independent of Credit Suisse AG, 
experienced in the matters that are the subject of the exemption, and 
capable of making the determinations required of this exemption.''
    The Department also made certain clarifying modifications to 
Section I(i)(4) of the Second Proposed Exemption to more accurately 
describe the information required in the Audit Report and to reinforce 
the requirement that the auditor must test for the Credit Suisse 
Affiliated QPAM's operational compliance with the Policies and Training 
requirements. Accordingly, the Department has modified the first 
sentence of Section I(i)(4) of the Second Proposed Exemption by 
substituting the word ``procedures'' for ``steps,'' and the second 
sentence by adding the phrase ``and compliance with'' to describe the 
auditor's determinations with regard to the Policies and Training.

[[Page 59824]]

    Finally, the Department has updated OED's mailing address for each 
Credit Suisse Affiliated QPAM's Audit Report found in Section I(i)(8) 
of the proposed exemption, and renumbered Sections I(i)(2) through 
I(i)(8) of the Second Proposed Exemption to reflect the addition of new 
Section I(i)(2) described above.
    13. Section I(k).
    Section I(k) of the Second Proposed Exemption provides that, 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, to 
certain undertakings, including among other things, ``(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.''
    The Department has become aware that there is some confusion about 
whether the exception to the restrictions in subparagraph (5) (i.e., 
for reasonable fees designed to prevent abusive investment practices or 
ensure equitable treatment to pooled fund investors) applies to 
subparagraph (4) as well, given that the rationale for the exception 
may apply to both. The Department takes the view that the rationale for 
applying the exception to the restriction in Section I(k)(5) applies to 
Section I(k)(4) inasmuch as the protection of investors in a pooled 
fund is concerned. Therefore, to resolve the confusion, the Department 
has modified Section I(k)(4) of the Second Proposed Exemption to 
provide that each Credit Suisse Affiliated QPAM agrees . . . ``(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, with the exception of reasonable restrictions, appropriately 
disclosed in advance, that are 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 restrictions are applied consistently and 
in like manner to all such investors.''
    Furthermore, Section I(k) of the Second Proposed Exemption provides 
that each Credit Suisse Affiliated QPAM will provide a notice to each 
ERISA-covered plan or IRA for which a Credit Suisse Affiliated QPAM 
provides asset management or other discretionary fiduciary services, 
within six (6) months of the date of publication of this notice of 
exemption in the Federal Register, of its required undertakings under 
Section I(k). The Department notes that the notification required by 
Section I(k), if already provided to an ERISA-covered plan or IRA in 
connection with the Temporary Final Exemption, need not be re-
delivered, but any ERISA-covered plan or IRA that has not received a 
notice pursuant to Section I(k) must receive such notification within 
six (6) months of the date of publication of this exemption in the 
Federal Register and/or receive a new, fully executed, investment 
management agreement containing the covenants required by Section I(k).
    14. Section I(m).
    Pursuant to Section I(m) of the Second Proposed Exemption, the 
Credit Suisse Affiliated QPAMs were required to provide certain 
disclosures 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.'' In its comment, the Applicant notes that notices were sent 
to interested persons, as agreed upon with the Department, and in 
accordance with Section I(m) of the Second Proposed Exemption. However, 
the Applicant requests confirmation that the ERISA-covered plans and 
IRAs referred to in Sections I(m)(1) and (2) are those (A) with respect 
to which PTE 84-14 may be used; and (B) that were clients of Credit 
Suisse Affiliated QPAMs or Credit Suisse AG as of the date that the 
Second Proposed Exemption was published in the Federal Register.
    The Department concurs with the Applicant's requested confirmation.

The Auditor's Statement

    The auditor requests confirmations and/or clarifications 
concerning: (1) The method which the auditor contemplates testing each 
Credit Suisse Affiliated QPAM's compliance with such QPAM's Policies in 
accordance with Section I(i)(3) of the Second Proposed Exemption; (2) 
the required determinations to be made by the auditor in the Audit 
Report in Section I(i)(4) of the Second Proposed Exemption; (3) the 
timing of the first and second audit reports and of the second audit 
specified by Section I(i)(1) of the Second Proposed Exemption; and (4) 
the scope of the audit as it relates to the requirement in Section 
(h)(1) of the Second Proposed Exemption for the Credit Suisse 
Affiliated QPAMs to develop, implement, maintain, and follow the 
Policies described therein.
    15. Section I(i)(3).
    The auditor sought the Department's views regarding the auditor's 
audit plan, as it relates to Section I(i)(3) of the Second Proposed 
Exemption, which requires that the auditor ``test each Credit Suisse 
Affiliated QPAM's operational compliance with the Policies . . . .'' 
Further, Section I(h)(1) of the Second Proposed Exemption requires that 
each Credit Suisse Affiliated QPAM ``immediately develops, implements, 
maintains, and follows the Policies requiring and reasonably designed 
to ensure that . . . (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.''
    The auditor states that, assuming that the Policies are deemed to 
be adequate, it plans to test each Credit Suisse Affiliated QPAM's 
operational compliance with the Policies, including its compliance with 
ERISA's fiduciary duties and ERISA and the Code's prohibited 
transaction provisions, by interviewing relevant personnel, gathering 
related documentation and evaluating a representative sample of 
transactions conducted by each Credit Suisse Affiliated QPAM for ERISA-
covered plans and IRAs over the covered period. Furthermore, the 
auditor states that each review would test each Credit Suisse 
Affiliated QPAM's compliance with the Policies' requirements related 
to: (a) Compliance with ERISA, including the Act's fiduciary, 
prohibited transaction, and reporting provisions; (b) ERISA 
corrections; (c) on-boarding ERISA client portfolios (e.g. required 
documentation, coding); and (d) ongoing ERISA compliance requirements 
for client portfolios, including: (i) Indicia of ownership, (ii) gifts 
and entertainment, (iii) fidelity

[[Page 59825]]

bonding, (iv) plan client reporting (e.g. Credit Suisse disclosures), 
(v) pooled investment funds, (vi) filings and statements to regulators, 
(vii) information barriers, and (viii) ERISA training.
    The Department notes that the contemplated testing and review 
described above is consistent with the Department's expectations 
concerning the auditor's responsibilities under Section I(i) of the 
exemption. However, the Department is not, at this time, taking a view 
herein whether the auditor's contemplated testing and review described 
above will be sufficient to satisfy its responsibilities under the 
exemption. The Department anticipates that the auditor's final audit 
plan and its actual audit testing and review may be different than that 
described above, depending on the facts and circumstances and actual 
conditions as they develop, in order to ensure the relevant 
requirements of this exemption have been met.
    16. Section I(i)(4).
    Section I(i)(4) of the Second Proposed Exemption provides, in 
relevant part, that ``[a]ny 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.'' The auditor requests confirmation that this sentence 
requires the auditor's determinations to be based on the independent 
compliance review that the auditor conducts itself and not simply upon 
representations made by Credit Suisse Affiliated QPAMs with respect to 
compliance with the Policies and Training requirements over the covered 
period.
    The Department confirms, in part, the auditor's request, as the 
determinations to be made under the exemption require the auditor to do 
its own independent compliance review and not simply rely upon the 
representations made by the Credit Suisse Affiliated QPAM. The 
Department also notes that Section I(i)(4) of the Second Proposed 
Exemption requires that any finding that the Credit Suisse Affiliated 
QPAM has complied with the requirements under Section I(h) be based on 
evidence that demonstrates the Credit Suisse Affiliated QPAM has 
actually implemented, maintained, and followed sufficient Policies and 
Training, as opposed to, for example, a finding that the Credit Suisse 
Affiliated QPAM has not violated ERISA, and therefore the Policies and 
Training in place to prevent such violations are deemed sufficient.
    17. Section I(i)(1).
    The auditor requests a clarification regarding the timing of the 
first audit report, since the audit requirement under PTE 2014-11 and 
the Second Proposed Exemption both cover the same time period but 
provide different due dates for the audit report. Furthermore, the 
auditor requests that the Department clarify whether the first full 
year annual audit specified in the Second Proposed Exemption obviates 
the need for the second six month audit period under PTE 2014-11. The 
Department believes that the clarifications described above address the 
auditor's requests.
    18. Section I(h)(1).
    Section I(h)(1) of the Second Proposed Exemption requires that 
``[e]ach Credit Suisse Affiliated QPAM immediately develops, 
implements, maintains, and follows written policies (the Policies) 
requiring and reasonably designed to ensure that . . . (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.'' The auditor requests a 
confirmation that, in connection with testing each Credit Suisse 
Affiliated QPAM's operational compliance with its Policies, the audit 
will only relate to ``communications'' in the form of written 
documents.
    The Department did not intend that the audit be restricted only to 
written documents. The Department expects that if the auditor is privy 
to relevant oral or other non-written communications, the auditor will 
also consider those communications in connection with performing the 
audit. Accordingly, in the Department's view, the auditor's 
responsibilities extend to any communications, written or otherwise, 
that exist in reviewable form, including notes of meetings, audio and 
video recordings, powerpoints, computer files, and any other media, 
provided that such information can reasonably be assumed to have been 
used in any communications referred to in Section I(h)(1) of the 
exemption.

Provision of Notice of Final Exemption

    Given that substantial changes have been made to the proposed 
exemption, as reflected in this final exemption, the Department is 
requiring that ERISA-covered plans and IRAs with assets managed by 
Credit Suisse Affiliated QPAMs in reliance of PTE 84-14 receive a copy 
of this final exemption no later than 90 days following the date of 
publication in the Federal Register. Notice to a plan or IRA may be 
provided electronically (including by an email that has a link to the 
exemption).
    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 the exemption. The complete application 
file, with copies of the comments, 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 First Proposed Exemption, published in the Federal Register on 
September 3, 2014, at 79 FR 52365; the Temporary Final Exemption, 
published in the Federal Register on November 18, 2014, at 79 FR 68716; 
and the Second Proposed Exemption published in the Federal Register on 
November 18, 2014, at 79 FR 68712.

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 affected plans and of their 
participants and beneficiaries, and the exemption is protective of the 
rights of participants and beneficiaries of such plans;
    (3) The exemption is supplemental to, and not in derogation of, any 
other

[[Page 59826]]

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 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\11\
---------------------------------------------------------------------------

    \11\ 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 \12\ notwithstanding 
the Conviction (as defined in Section II(c)),\13\ provided the 
following conditions are satisfied:
---------------------------------------------------------------------------

    \12\ 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).
    \13\ 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 it does not 
engage or employ any person involved in the criminal conduct that 
underlies the Conviction in connections with transactions involving 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 QPAM 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, cover 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 
conducted annually by an independent auditor, who has been prudently 
selected and who has appropriate technical training and proficiency 
with ERISA to evaluate

[[Page 59827]]

the adequacy of, and compliance with, the Policies and Training 
described herein; the audit requirement must be incorporated in the 
Policies. Each audit must cover a twelve month period that begins on 
November 21 and ends on the following November 20, and be completed no 
later than six (6) months after the period to which the audit applies;
    (2) To the extent necessary for the auditor, in its sole opinion, 
to complete its audit and comply with the conditions for relief 
described herein, each Credit Suisse Affiliated QPAM and, if 
applicable, Credit Suisse AG, will grant the auditor unconditional 
access to its business, including, but not limited to: Its computer 
systems, business records, transactional data, workplace locations, 
training materials, and personnel;
    (3) 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;
    (4) The auditor's engagement shall specifically require the auditor 
to test each Credit Suisse Affiliated QPAM's operational compliance 
with the Policies and Training;
    (5) 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 procedures performed by 
the auditor during the course of its examination. The Audit Report 
shall include the auditor's specific determinations regarding the 
adequacy of, and compliance with, 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. In this last 
regard, any finding that the Credit Suisse Affiliated QPAM has complied 
with the requirements under this subsection must be based on evidence 
that demonstrates the Credit Suisse Affiliated QPAM has actually 
implemented, maintained, and followed the Policies and Training 
required by this exemption, and not solely on evidence that 
demonstrates that the Credit Suisse Affiliated QPAM has not violated 
ERISA;
    (6) 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;
    (7) With respect to each Audit Report, the General Counsel or one 
of the three most senior executive officers 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;
    (8) 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;
    (9) Each Credit Suisse Affiliated QPAM provides its certified Audit 
Report to the Department's Office of Exemption Determinations (OED), 
200 Constitution Avenue NW, Suite 400, 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;
    (10) Each Credit Suisse Affiliated QPAM and the auditor will submit 
to OED (A) any engagement agreement(s) entered into pursuant to the 
engagement of the auditor under this exemption, and (B) any engagement 
agreement entered into with any other entities retained in connection 
with such QPAM's compliance with the Training or Policies conditions of 
this exemption, no later than twelve (12) months after the date of the 
Conviction (and one month after the execution of any agreement 
thereafter);
    (11) The auditor shall provide OED, upon request, all of the 
workpapers created and utilized in the course of the audit, including, 
but not limited to: The audit plan, audit testing, identification of 
any instances of noncompliance by the relevant Credit Suisse Affiliated 
QPAM, and an explanation of any corrective or remedial actions taken by 
the applicable Credit Suisse Affiliated QPAM; and
    (12) Credit Suisse AG must notify the Department at least 30 days 
prior to any substitution of an auditor, except that no such 
replacement will meet the requirements of this paragraph unless and 
until Credit Suisse AG demonstrates to the Department's satisfaction 
that such new auditor is independent of Credit Suisse AG, experienced 
in the matters that are the subject of the exemption, and capable of 
making the determinations required of this exemption;
    (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 notice 
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 with 
respect to such ERISA-covered plan or IRA, and refrain from engaging in 
prohibited transactions that are not otherwise exempt; (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

[[Page 59828]]

the Credit Suisse Affiliated QPAM, with the exception of reasonable 
restrictions, appropriately disclosed in advance, that are 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 restrictions 
are applied consistently and in like manner to all such investors; 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 notice of 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) 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) The Credit Suisse Affiliated QPAMs provided a notice of the 
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 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; and
    (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 Suisse 
AG, a Credit Suisse Affiliated QPAM, or a different Credit Suisse 
Related QPAM fails to satisfy a condition for relief under this 
exemption;
    (o) ERISA-covered plans and IRAs with assets managed by Credit 
Suisse Affiliated QPAMs in reliance of PTE 84-14 must receive a copy of 
this final exemption no later than 90 days following the date of 
publication in the Federal Register. Notice to a plan or IRA may be 
provided electronically (including by an email that has a link to the 
exemption).

Section II: Definitions

    (a) The term ``Credit Suisse Affiliated QPAM'' means a ``qualified 
professional asset manager'' (as defined in section VI(a) \14\ 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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    \14\ 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, that was entered in the District Court for 
the Eastern District of Virginia in Case Number 1:14-cr-188-RBS, on 
November 21, 2014.

    Signed at Washington, DC, this 25th day of September, 2015.
Lyssa Hall,
Director of Exemption Determinations, Employee Benefits Security 
Administration, U.S. Department of Labor.
[FR Doc. 2015-24919 Filed 10-1-15; 8:45 am]
 BILLING CODE 4510-29-P