Proposed Exemptions From Certain Prohibited Transaction Restrictions, 70562-70583 [2016-24595]

Download as PDF 70562 Federal Register / Vol. 81, No. 197 / Wednesday, October 12, 2016 / Notices DEPARTMENT OF LABOR Employee Benefits Security Administration Proposed Exemptions From Certain Prohibited Transaction Restrictions Employee Benefits Security Administration, Labor. ACTION: Notice of proposed exemptions. AGENCY: This document contains notices of pendency before the Department of Labor (the Department) of proposed exemptions from certain of the prohibited transaction restrictions of the Employee Retirement Income Security Act of 1974 (ERISA or the Act) and/or the Internal Revenue Code of 1986 (the Code). This notice includes the following proposed exemptions: D– 11868, Royal Bank of Canada (together with its current and future affiliates, RBC or the Applicant); D–11875, Northern Trust Corporation (together with its current and future affiliates, Northern or the Applicant; and D– 11879, Proposed Extension of PTE 2015–15 involving Deutsche Bank AG (Deutsche Bank). DATES: All interested persons are invited to submit written comments or requests for a hearing on the pending exemptions, unless otherwise stated in the Notice of Proposed Exemption, within 45 days from the date of publication of this Federal Register Notice. ADDRESSES: Comments and requests for a hearing should state: (1) The name, address, and telephone number of the person making the comment or request, and (2) the nature of the person’s interest in the exemption and the manner in which the person would be adversely affected by the exemption. A request for a hearing must also state the issues to be addressed and include a general description of the evidence to be presented at the hearing. All written comments and requests for a hearing (at least three copies) should be sent to the Employee Benefits Security Administration (EBSA), Office of Exemption Determinations, U.S. Department of Labor, 200 Constitution Avenue NW., Suite 400, Washington, DC 20210. Attention: Application No. ll, stated in each Notice of Proposed Exemption. Interested persons are also invited to submit comments and/or hearing requests to EBSA via email or FAX. Any such comments or requests should be sent either by email to: moffitt.betty@dol.gov, or by FAX to (202) 693–8474 by the end of the scheduled comment period. The applications for exemption and the mstockstill on DSK3G9T082PROD with NOTICES3 SUMMARY: VerDate Sep<11>2014 17:46 Oct 11, 2016 Jkt 238001 comments received will be available for public inspection in the Public Documents Room of the Employee Benefits Security Administration, U.S. Department of Labor, Room N–1515, 200 Constitution Avenue NW., Washington, DC 20210. Warning: All comments will be made available to the public. Do not include any personally identifiable information (such as Social Security number, name, address, or other contact information) or confidential business information that you do not want publicly disclosed. All comments may be posted on the Internet and can be retrieved by most Internet search engines. SUPPLEMENTARY INFORMATION: Notice to Interested Persons Notice of the proposed exemptions will be provided to all interested persons in the manner agreed upon by the applicant and the Department within 15 days of the date of publication in the Federal Register. Such notice shall include a copy of the notice of proposed exemption as published in the Federal Register and shall inform interested persons of their right to comment and to request a hearing (where appropriate). The proposed exemptions were requested in applications filed pursuant to section 408(a) of the Act and/or section 4975(c)(2) of the Code, and in accordance with procedures set forth in 29 CFR part 2570, subpart B (76 FR 66637, 66644, October 27, 2011).1 Effective December 31, 1978, section 102 of Reorganization Plan No. 4 of 1978, 5 U.S.C. App. 1 (1996), transferred the authority of the Secretary of the Treasury to issue exemptions of the type requested to the Secretary of Labor. Therefore, these notices of proposed exemption are issued solely by the Department. The applications contain representations with regard to the proposed exemptions which are summarized below. Interested persons are referred to the applications on file with the Department for a complete statement of the facts and representations. Royal Bank of Canada (Together With Its Current and Future Affiliates, RBC or the Applicant), Located in Toronto, Ontario, Canada [Exemption Application No. D–11868] 1 The Department has considered exemption applications received prior to December 27, 2011 under the exemption procedures set forth in 29 CFR part 2570, subpart B (55 FR 32836, 32847, August 10, 1990). PO 00000 Frm 00002 Fmt 4701 Sfmt 4703 Proposed Temporary Exemption The Department is considering granting a temporary exemption under the authority of section 408(a) of the Employee Retirement Income Security Act of 1974, as amended, (ERISA or the Act) and section 4975(c)(2) of the Internal Revenue Code of 1986, as amended (the Code), and in accordance with the procedures set forth in 29 CFR part 2570, subpart B (76 FR 66637, 66644, October 27, 2011).2 Section I: Covered Transactions If the proposed temporary exemption is granted, certain entities with specified relationships to Royal Bank of Canada Trust Company (Bahamas) Limited (hereinafter, the RBC QPAMs, as further defined in Section II(b)) shall not be precluded from relying on the exemptive relief provided by Prohibited Transaction Exemption (PTE) 84–14,3 notwithstanding a judgment of conviction against Royal Bank of Canada Trust Company (Bahamas) Limited for aiding and abetting tax fraud, to be entered in France in the District Court of Paris (the Conviction, as further defined in Section II(a)),4 for a period of up to twelve months beginning on the date of the Conviction (the Conviction Date), provided that the following conditions are satisfied: (a) The RBC QPAMs (including their officers, directors, agents other than RBC, and employees of such RBC QPAMs) did not know of, have reason to know of, or participate in the criminal conduct of RBCTC Bahamas that is the subject of the Conviction (for purposes of this paragraph (a), ‘‘participate in’’ includes the knowing or tacit approval of the misconduct underlying the Conviction); (b) The RBC QPAMs (including their officers, directors, agents other than RBC, and employees of such RBC QPAMs) did not receive direct compensation, or knowingly receive indirect compensation, in connection with the criminal conduct that is the subject of the Conviction; 2 For purposes of this proposed temporary exemption, references to section 406 of Title I of the Act, unless otherwise specified, should be read to refer as well to the corresponding provisions of section 4975 of the Code. 3 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). 4 Section I(g) of PTE 84–14 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 aiding and abetting tax evasion. E:\FR\FM\12OCN3.SGM 12OCN3 mstockstill on DSK3G9T082PROD with NOTICES3 Federal Register / Vol. 81, No. 197 / Wednesday, October 12, 2016 / Notices (c) The RBC QPAMs will not employ or knowingly engage any of the individuals that participated in the criminal conduct that is the subject of the Conviction (for purposes of this paragraph (c), ‘‘participated in’’ includes the knowing or tacit approval of the misconduct underlying the Conviction); (d) An RBC 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 or the Code and managed by such RBC QPAM, to enter into any transaction with RBCTC Bahamas or engage RBCTC Bahamas to provide any service to such investment fund, for a direct or indirect fee borne by such investment fund, regardless of whether such transaction or service may otherwise be within the scope of relief provided by an administrative or statutory exemption; (e) Any failure of the RBC QPAMs to satisfy Section I(g) of PTE 84–14 arose solely from the Conviction; (f) No entities holding assets that constitute the assets of any plan subject to Part 4 of Title I of ERISA (an ERISAcovered plan) or section 4975 of the Code (an IRA) were involved in the criminal conduct that is the subject of the Conviction; (g) RBCTC Bahamas has not provided nor will provide discretionary asset management services to ERISA-covered plans or IRAs, or otherwise will act as a fiduciary with respect to ERISAcovered plan and IRA assets; (h)(1) Each RBC QPAM must immediately develop, implement, maintain, and follow written policies (the Policies) requiring and reasonably designed to ensure that: (i) The asset management decisions of the RBC QPAM are conducted independently of the management and business activities of RBC, including RBCTC Bahamas; (ii) The RBC QPAM fully complies with ERISA’s fiduciary duties and with 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 RBC 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 RBC 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, VerDate Sep<11>2014 17:46 Oct 11, 2016 Jkt 238001 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 RBC 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 RBC QPAM complies with the terms of this temporary exemption, if granted; and (vii) Any violation of, or failure to comply with, an item in subparagraph (ii) through (vi), is corrected promptly upon discovery, and any such violation or compliance failure not promptly corrected is reported, upon discovering the failure to promptly correct, in writing, to appropriate corporate officers, the head of compliance and the General Counsel (or their functional equivalent) of the relevant RBC QPAM, and an appropriate fiduciary of any affected ERISA-covered plan or IRA where such fiduciary is independent of RBC; 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 RBC or beneficially owned by an employee of RBC or its affiliates, such fiduciary does not need to be independent of RBC. An RBC QPAM will not be treated as having failed to develop, implement, maintain, or follow the Policies, provided that it corrects any instance of noncompliance promptly when discovered or when it reasonably should have known of the noncompliance (whichever is earlier), and provided that it adheres to the reporting requirements set forth in this subparagraph (vii); (2) Each RBC QPAM must immediately develop and implement a program of training (the Training), conducted at least annually, for all relevant RBC QPAM asset/portfolio management, trading, legal, compliance, and internal audit personnel. The Training must 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), ethical conduct, the consequences for not complying with the conditions of this temporary exemption, if granted (including any loss of exemptive relief provided herein), and prompt reporting of wrongdoing; (i) Effective as of the effective date of this temporary exemption, if granted, with respect to any arrangement, PO 00000 Frm 00003 Fmt 4701 Sfmt 4703 70563 agreement, or contract between an RBC QPAM and an ERISA-covered plan or IRA for which an RBC QPAM provides asset management or other discretionary fiduciary services, each RBC QPAM agrees: (1) To comply with ERISA and the Code, as applicable with respect to such ERISA-covered plan or IRA; to refrain from engaging in prohibited transactions that are not otherwise exempt (and to promptly correct any inadvertent prohibited transactions); and to comply with the standards of prudence and loyalty set forth in section 404 of ERISA with respect to each such ERISAcovered plan and IRA; (2) Not to require (or otherwise cause) the ERISA-covered plan or IRA to waive, limit, or qualify the liability of the RBC 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 ERISAcovered plan or beneficial owner of such IRA) to indemnify the RBC 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 RBC; (4) Not to restrict the ability of such ERISA-covered plan or IRA to terminate or withdraw from its arrangement with the RBC QPAM (including any investment in a separately managed account or pooled fund subject to ERISA and managed by such 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 as a result of an actual lack of liquidity of the underlying assets, provided that such restrictions are applied consistently and in like manner to all such investors; (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; E:\FR\FM\12OCN3.SGM 12OCN3 70564 Federal Register / Vol. 81, No. 197 / Wednesday, October 12, 2016 / Notices (6) Not to include exculpatory provisions disclaiming or otherwise limiting liability of the RBC QPAM for a violation of such agreement’s terms; and (7) To indemnify and hold harmless the ERISA-covered plan or IRA for any damages resulting from a violation of applicable laws, a breach of contract, or any claim arising out of the failure of such RBC QPAM to qualify for the exemptive relief provided by PTE 84–14 as a result of a violation of Section I(g) of PTE 84–14 other than the Conviction. Within six (6) months of the date of publication of a notice of temporary exemption in the Federal Register, if granted, each RBC QPAM will: Provide a notice of its obligations under this Section I(i) to each ERISA-covered plan and IRA for which an RBC QPAM provides asset management or other discretionary fiduciary services; and Separately warrant in writing to each such ERISA-covered plan and IRA its obligations under subparagraph (1) of this Section I(i); (j) The RBC QPAMs comply with each condition of PTE 84–14, as amended, with the sole exceptions of the violations of Section I(g) of PTE 84–14 that are attributable to the Conviction; (k) Each RBC QPAM will maintain records necessary to demonstrate that the conditions of this temporary exemption, if granted, have been met, for six (6) years following the date of any transaction for which such RBC QPAM relies upon the relief in the temporary exemption, if granted; (l) During the effective period of this temporary exemption, if granted, neither RBC nor any affiliate enters into a Deferred Prosecution Agreement (a DPA) or a Non-Prosecution Agreement (an NPA) with the U.S Department of Justice, in connection with conduct described in Section I(g) of PTE 84–14 or section 411 of ERISA; and (m) An RBC QPAM will not fail to meet the terms of this temporary exemption, if granted, solely because a different RBC QPAM fails to satisfy a condition for relief under this temporary exemption, if granted, described in Sections I(c), (d), (h), (i), (j), and (k). mstockstill on DSK3G9T082PROD with NOTICES3 Section II: Definitions (a) The term ‘‘Conviction’’ means the potential judgment of conviction against RBCTC Bahamas for aiding and abetting tax fraud to be entered in France in the District Court of Paris, French Special Prosecutor No. 1120392066, French Investigative Judge No. JIRSIF/11/12; (b) The term ‘‘RBC QPAM’’ means a ‘‘qualified professional asset manager’’ VerDate Sep<11>2014 17:46 Oct 11, 2016 Jkt 238001 (as defined in section VI(a) 5 of PTE 84– 14) that relies on the relief provided by PTE 84–14 and with respect to which RBCTC Bahamas is a current or future ‘‘affiliate’’ (as defined in section VI(d) of PTE 84–14); (c) The term ‘‘RBCTC Bahamas’’ means Royal Bank of Canada Trust Company (Bahamas) Limited, a Bahamian ‘‘affiliate’’ of RBC (as defined in section VI(c) of PTE 84–14); (d) The terms ‘‘ERISA-covered plan’’ and ‘‘IRA’’ mean, respectively, a plan subject to Part 4 of Title I of ERISA and a plan subject to section 4975 of the Code; and (e) The term ‘‘RBC’’ means Royal Bank of Canada, together with its current and future affiliates. Effective Date: This proposed temporary exemption, if granted, will be effective for the period beginning on the Conviction Date until the earlier of: The date that is twelve months following the Conviction Date; or the effective date of a final agency action made by the Department in connection with an application for long-term exemptive relief for the covered transactions described herein. Department’s Comment: The Department is publishing this proposed temporary exemption in order to protect ERISA-covered plans and IRAs from certain costs and/or investment losses that may arise to the extent entities with a corporate relationship to RBCTC Bahamas lose their ability to rely on PTE 84–14 as of the Conviction Date, as described below. The proposed exemption, if granted, would provide relief from certain of the restrictions set forth in sections 406 and 407 of ERISA. No relief from a violation of any other law would be provided by this exemption, if granted, including any criminal conviction described herein. Furthermore, the Department cautions that the relief in this proposed exemption, if granted, would terminate immediately if, among other things, an entity within the RBC corporate structure is convicted of a crime described in Section I(g) of PTE 84–14 (other than the Conviction) during the effective period of the exemption. While such an entity could apply for a new exemption in that circumstance, the Department would not be obligated to grant the exemption. The terms of this 5 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. PO 00000 Frm 00004 Fmt 4701 Sfmt 4703 proposed exemption have been specifically designed to permit plans to terminate their relationships in an orderly and cost effective fashion in the event of an additional conviction or a determination that it is otherwise prudent for a plan to terminate its relationship with an entity covered by the proposed exemption. Summary of Facts and Representations Background 1. The Royal Bank of Canada (together with its current and future affiliates, RBC or the Applicant) is a Canadian corporation headquartered in Toronto, Ontario. RBC is Canada’s largest bank and one of the largest banks in the world, with approximately 78,000 employees in offices through Canada, the United States, and 38 other countries. RBC provides personal and commercial banks, wealth management services, insurance, investor services, and capital markets products and services on a global basis. As of October 31, 2014, RBC had approximately CAD$457 billion in assets under management and CAD$4.6 trillion in assets under administration and equity attributable to shareholders of CAD$52.7 billion. 2. RBC owns RBC Capital Markets, LLC, a U.S. registered broker-dealer and a U.S. registered investment adviser. RBC also owns RBC Global Asset Management (U.S.) Inc., a U.S. registered investment adviser, as well as several other registered investment adviser affiliates in the United States and around the world. 3. Royal Bank of Canada Trust Company (Bahamas) Limited (RBCTC Bahamas) is a wholly owned subsidiary of RBC located in the Bahamas, and is regulated by the Central Bank of the Bahamas. RBCTC Bahamas currently provides trust and company management services in all major currencies to international clients. RBCTC Bahamas currently employs 16 full-time equivalents and 5 contractors, and has reported revenues of USD $5,143,861 in fiscal year 2015. As of the second quarter of 2016, RBCTC Bahamas has reported total assets under custody of $2.5 billion, which includes cash, real estate, art, securities, and interests in privately held companies. RBCTC Bahamas is not engaged in asset management activities and does not act as a fiduciary of any plans subject to Part 4 of Title I of ERISA (ERISAcovered plans) or section 4975 of the Code (IRAs). 4. RBCTC Bahamas trust and company management services include ongoing interaction with trusts’ settlors E:\FR\FM\12OCN3.SGM 12OCN3 mstockstill on DSK3G9T082PROD with NOTICES3 Federal Register / Vol. 81, No. 197 / Wednesday, October 12, 2016 / Notices and beneficiaries, investment managers and advisors, and settlors’ legal counsel, among others. RBCTC Bahamas also may appoint corporate directors (entities wholly owned by RBCTC Bahamas) for some of the underlying holding entities owned by the trusts for which RBCTC Bahamas acts as trustee. These entities hold assets (which could include cash marketable securities, privately held companies, art, yachts, and other property). 5. Among RBCTC Bahamas’s services is providing directors for corporations created by their clients. Such RBCTC Bahamas personnel perform the usual duties of corporate directors. Moreover, RBCTC Bahamas must properly keep the accounts, as they are subject to internal audit to ascertain that proper management is in place. As a result, RBCTC Bahamas provides trust and company accounting each year, variously including upon request, among other things, an account of all monies received and distributed. In addition, at the request of a client, RBCTC Bahamas will, among other things, assist in the appointment of investment advisors and proposed investment houses and assist in communication with legal advisors, investment advisors and corporate formation agents. Further, as requested, RBCTC Bahamas will, among other things, exercise all duties, responsibilities and powers as set out in the documentation governing RBCTC Bahamas’s appointment as trustee and attend to all day to day administrative issues. 6. Over the last several years, RBCTC Bahamas’s operations have been reduced in scope. On November 4, 2015, RBCTC Bahamas announced that it had entered into a purchase and sale agreement with SMP Partners Group to sell its Trust, Custody and Fund Administration businesses in the Caribbean. This follows the announcement in November 2014 that RBC would be exiting a number of its Wealth Management businesses in the Caribbean. Upon completion of the sale and orderly transfer of the structures and assets to new providers, RBCTC Bahamas will surrender its trust license back to the Central Bank of the Bahamas. The Applicant anticipates that this process will be completed in the next 12 to 24 months. RBC represents that, even if the sale is completed, ongoing operations will still be necessary to support the remaining assets. As a result, the requested exemption will still be required. VerDate Sep<11>2014 17:46 Oct 11, 2016 Jkt 238001 Investigation for Tax Fraud 7. The Applicant has applied for an exemption in relation to a potential judgment of conviction against RBCTC Bahamas for aiding and abetting tax fraud, to be entered in France in the District Court of Paris, French Special Prosecutor No. 1120392066, French Investigative Judge No. JIRSIF/11/12 (the Conviction). The facts forming the basis of the Conviction reach back several years and involve investigations by French prosecutors. In January 2012, RBCTC Bahamas was summoned to appear before a French Judge of Instruction (the Investigative Judge) concerning an investigation into nonpayment of French inheritance taxes by Guy Wildenstein and Alec Daniel Armand Wildenstein (the Wildensteins) following the death in 2001 of family patriarch Daniel Wildenstein. RBCTC Bahamas was placed under judicial investigation, and in December 2013, the Investigative Judge referred the case to the French national prosecutor of financial crimes (the Special Prosecutor) for a review and recommendation. In January 2015, the Special Prosecutor submitted a recommendation that RBCTC Bahamas and several others be charged with complicity in the Wildensteins’ alleged tax fraud and money laundering. 8. On April 9, 2015, the Paris Court of Appeal (the Court) for the District Court of Paris issued an Order of Dismissal and Referral before the Criminal Court (the Referral Order). In the Referral Order, RBCTC Bahamas is charged with complicity in the alleged tax fraud of the Wildensteins with respect to taxes allegedly owed to France on assets held in a Bahamian trust for which RBCTC Bahamas has served as successor trustee since 2004.6 Specifically, the Court found that the investigation produced sufficient charges against RBCTC Bahamas for having, in the Bahamas, beginning on November 19, 2004, aided and abetted tax fraud committed in Paris by Daniel Wildenstein’s heirs by deliberately concealing a portion of the sums subject to French taxation on Daniel Wildenstein’s estate, in particular the works of art placed in the ‘‘Delta Trust’’ of which RBCTC Bahamas was the 6 The Referral Order charges both of the Wildensteins with multiple counts of tax fraud, notably for failing to disclose, and pay taxes on, assets held in various trusts following the death of Daniel Wildenstein. The Wildensteins, both of whom are among the beneficiaries of the trust for which RBCTC Bahamas has served as trustee since 2004, have been charged with failing to report and pay inheritance taxes on the assets held in that trust following the death in 2001 of Daniel Wildenstein, and again in an amended filing made in 2008. PO 00000 Frm 00005 Fmt 4701 Sfmt 4703 70565 trustee, deeds which are governed by and punishable under Articles 121–2, 121–6, 121–7, 321–1, 321–3, 321–12 of the French Criminal Code and Articles 1741 et 1745 of the French General Tax Code. 9. According to the Applicant, the pertinent facts that underlie these charges, as set out in the Referral Order, are as follows: on February 23, 1998, Daniel Wildenstein established a discretionary trust in the Bahamas called the Delta Trust. The Delta Trust was designed to be revocable up to the point of Daniel Wildenstein’s death, then irrevocable thereafter. The Delta Trust was settled with works of art. Royal Bank of Scotland was the initial trustee of the Delta Trust. In early 2001, Royal Bank of Scotland was replaced as trustee by Coutts Trust Holdings Limited, which was succeeded by Coutts Trustees (Bahamas) Limited. On October 21, 2001, Daniel Wildenstein died in Paris. On April 28, 2002, Guy Wildenstein and his brother, Alec Wildenstein Sr., filed an inheritance tax statement in relation to the estate of their father, Daniel Wildenstein, as required by French tax laws. Guy Wildenstein and Alec Wildenstein Sr. did not disclose, in this inheritance tax statement, the existence of the Delta Trust or the existence of the assets therein. RBCTC Bahamas was appointed trustee in November of 2004, three years after Daniel Wildenstein’s death and more than two years after Guy Wildenstein and Alec Wildenstein Sr. had filed their allegedly false inheritance tax statement. 10. The Applicant represents that, according to the French authorities, the existence of the Delta Trust as well as the assets of the Delta Trust should have been disclosed to the French authorities by Guy Wildenstein and by Alec Wildenstein Sr. when they filed their inheritance tax statement in 2002.7 An inheritance tax would have followed in relation to these assets. 11. The Referral Order provides that RBCTC Bahamas actually knew, or should have known, that Daniel Wildenstein was of French nationality, and that he died in France. The Referral Order also provides that, at the least, RBCTC should have investigated in greater detail the facts in relation to Daniel Wildenstein’s residency and, likewise, the tax consequences of that 7 The authorities allege that this disclosure should have occurred because the assets in the Delta Trust were initially revocable (i.e., the assets in trust could be revoked by Daniel Wildenstein up to the time of his death). As such, the authorities state that the assets in the Delta Trust belonged to Daniel Wildenstein’s estate and were therefore taxable under French tax laws. E:\FR\FM\12OCN3.SGM 12OCN3 70566 Federal Register / Vol. 81, No. 197 / Wednesday, October 12, 2016 / Notices residency. In addition, the Referral Order provides that the Delta Trust did not operate as a discretionary trust for purposes of French tax law, which would have generally required the trustee to have control over the management of the trust’s assets. Among other things,8 the Referral Order describes the existence of a management agreement between the trustee and the Wildenstein art gallery in New York as well as to the role played by the gallery as further evidence that the Delta Trust remained under the Wildenstein family’s control before and after Daniel Wildenstein’s death. Under the terms of the management agreement, the Wildenstein gallery was retained by the Delta Trust trustee to assist and to advise upon the management of the collection of art in trust. Finally, the Referral Order points out that RBCTC Bahamas filed an amended declaration with the Internal Revenue Service to declare the paintings in the Delta Trust which were present on U.S. territory at the time of Daniel Wildenstein’s death, even though the Delta Trust was purportedly discretionary and irrevocable. 12. RBC contests it liability for aiding and abetting tax evasion. The trial commenced on January 4, 2016. On January 6, 2016, the Paris Criminal Court suspended the proceeding to probe the trial’s constitutionality. The Applicant represents that the trial is scheduled to resume on September 22, 2016, and that the conviction date (if there is a conviction) is expected to be on or after October 14, 2016. mstockstill on DSK3G9T082PROD with NOTICES3 Significance of Class PTE 84–14 and the Violation of Condition I(g) of PTE 84–14 13. The Department notes that the rules set forth in section 406 of the Employee Retirement Income Security Act of 1974, as amended (ERISA) and section 4975(c) of the Internal Revenue Code of 1986, as amended (the Code) proscribe certain ‘‘prohibited transactions’’ between plans and related parties with respect to those plans, known as ‘‘parties in interest.’’ 9 Under the authority of section 408(a) of ERISA and section 4975(c)(2) of the Code, the Department has the authority to grant exemptions from such ‘‘prohibited transactions’’ in accordance with the procedures set forth in 29 CFR part 8 The Applicant notes that the French authorities point to a ‘‘Letter of Wishes,’’ which Daniel Wildenstein delivered to the then trustee, as evidence that the assets of the Delta Trust remained under Daniel Wildenstein’s control during his lifetime. 9 For purposes of the Summary of Facts and Representations, references to specific provisions of Title I of ERISA, unless otherwise specified, refer also to the corresponding provisions of the Code. VerDate Sep<11>2014 17:46 Oct 11, 2016 Jkt 238001 2570, subpart B (76 FR 66637, 66644, October 27, 2011). 14. Class Prohibited Transaction Exemption 84–14 (PTE 84–14) 10 exempts certain prohibited transactions between a party in interest and an ‘‘investment fund’’ (as defined in Section VI(b) of that exemption) 11 in which a plan has an interest, if the investment manager satisfies the definition of ‘‘qualified professional asset manager’’ (QPAM) and satisfies additional conditions for the exemption. PTE 84–14 was developed and granted based on the essential premise that broad relief could be afforded for all types of transactions in which a plan engages only if the commitments and the investments of plan assets and the negotiations leading thereto are the sole responsibility of an independent, discretionary, manager.12 15. However, Section I(g) of PTE 84– 14 prevents an entity that may otherwise meet the definition of ‘‘QPAM’’ from utilizing the exemptive relief provided by PTE 84–14, for itself and its client plans, if that entity or an ‘‘affiliate’’ 13 thereof or any owner, direct or indirect, of a 5 percent or more interest in the QPAM has, within 10 years immediately preceding the transaction, been either convicted or released from imprisonment, whichever is later, as a result of certain specified criminal activity described in that section.14 The Department notes that Section I(g) was included in PTE 84–14, in part, based on the expectation that a QPAM, and those who may be in a 10 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). 11 An ‘‘investment fund’’ includes single customer and pooled separate accounts maintained by an insurance company, individual trusts and common, collective or group trusts maintained by a bank, and any other account or fund to the extent that the disposition of its assets (whether or not in the custody of the QPAM) is subject to the discretionary authority of the QPAM. 12 See 75 FR 38837, 38839 (July 6, 2010). 13 Section VI(d) of PTE 84–14 defines the term ‘‘affiliate’’ for purposes of Section I(g) as ‘‘(1) Any person directly or indirectly through one or more intermediaries, controlling, controlled by, or under common control with the person, (2) Any director of, relative of, or partner in, any such person, (3) Any corporation, partnership, trust or unincorporated enterprise of which such person is an officer, director, or a 5 percent or more partner or owner, and (4) Any employee or officer of the person who—(A) Is a highly compensated employee (as defined in Section 4975(e)(2)(H) of the Code) or officer (earning 10 percent or more of the yearly wages of such person), or (B) Has direct or indirect authority, responsibility or control regarding the custody, management or disposition of plan assets.’’ 14 For purposes of Section I(g) of PTE 84–14, a person shall be deemed to have been ‘‘convicted’’ from the date of the judgment of the trial court, regardless of whether that judgment stands on appeal. PO 00000 Frm 00006 Fmt 4701 Sfmt 4703 position to influence its policies, maintain a high standard of integrity.15 Accordingly, in the event that RBCTC is convicted of the crimes alleged in the Referral Order, QPAMs with certain corporate relationships to RBCTC, as well as their client ERISA-covered plans and IRAs will no longer be able to rely on PTE 84–14 without an additional individual exemption issued by the Department. The RBC QPAMs and the Failure To Comply With PTE 84–14 16. Certain current and future ‘‘affiliates’’ of RBCTC Bahamas, as that term is defined in section VI(d) of PTE 84–14, may act as QPAMs in reliance on PTE 84–14 (these entities are collectively referred to as the ‘‘RBC QPAMs’’). The primary U.S. bank and U.S. registered adviser affiliates in which RBC owns a significant interest, directly or indirectly, include the following: (1) RBC Global Asset Management (U.S.) Inc.; (2) RBC Global Asset Management (UK) Limited; (3) RBC Capital Markets, LLC; and (4) BlueBay Asset Management LLP. The Applicant also represents that there are other affiliated managers that could meet the definition of ‘‘QPAM’’ in the future, but which do not currently have ERISA or IRA clients. Additionally, there are other managers that are not currently registered as investment advisers under the Investment Advisers Act of 1940 but could become registered investment advisers in the future while managing ERISA and IRA assets and seek to use PTE 84–14 to facilitate certain transactions. 17. RBC explains that the RBC QPAMs provide asset management services to thousands of ERISA-covered plans and IRAs. In managing these assets, the RBC QPAMs regularly rely on PTE 84–14 for, among other things, global fixed income, global equities, futures, options, swaps and other derivatives, alternative funds, including hedge funds, and similar instruments and strategies. The issuing documents for many instruments contain deemed representations regarding reliance, at least partially, on PTE 84–14. 18. According to the Applicant, the investment management businesses that are operated out of the RBC QPAMs are separate from RBCTC Bahamas, and from the non-investment management business activities of RBCTC Bahamas that are the subject of criminal charges under French law. The Applicant states that RBC QPAMs have dedicated systems, management, risk and compliance officers. RBC represents that 15 See E:\FR\FM\12OCN3.SGM 47 FR 56945, 56947 (December 21, 1982). 12OCN3 Federal Register / Vol. 81, No. 197 / Wednesday, October 12, 2016 / Notices the investment management businesses of the RBC QPAMs are subject to policies and procedures, and RBC QPAM personnel engage in training, designed to ensure that such businesses understand and abide by their fiduciary duties in accordance with applicable law. 19. According to RBC, the policies and procedures create information barriers designed to prevent employees of the RBC QPAMs from gaining access to inside information that an affiliate may have acquired or developed in connection with the investment banking, treasury services or other investor services business activities. These policies and procedures apply to employees, officers, and directors of the RBC QPAMs. The Applicant also maintains an employee hotline for employees to express any concerns of wrongdoing anonymously. Request for Relief 20. At the time of this proposed temporary exemption, RBCTC (Bahamas) has not been convicted and therefore its conduct has not been determined to be criminal.16 Moreover, RBCTC (Bahamas) maintains that it engaged in no criminal conduct and it is mounting a defense in the French proceeding. Nevertheless, the Applicant states that if the Paris Criminal Court issues a Conviction of RBCTC Bahamas, the RBC QPAMs will be in violation of Section I(g) of PTE 84–14. In the event that the condition in Section I(g) of PTE 84–14 is violated, those asset managers can no longer rely on PTE 84–14 without a separate individual prohibited transaction exemption. Therefore, the Applicant has requested an exemption to allow the RBC QPAMs to continue to use PTE 84–14, notwithstanding such Conviction.17 mstockstill on DSK3G9T082PROD with NOTICES3 Statutory Findings—Administratively Feasible 21. The Applicant states that the proposed exemption is administratively feasible because it does not require any monitoring by the Department. Furthermore, the exemption’s limited effective duration provides the Department the opportunity to make its determination whether or not long-term exemptive relief is warranted, without causing sudden and potentially costly harm to ERISA-covered plans and IRAs. 16 The Applicant represents that there is an ongoing regulatory investigation into the matter in Hong Kong, but the Applicant is not aware of any indication that this investigation is leading to potential criminal indictments in Hong Kong. 17 The Department notes that, in the event that RBCTC Bahamas is not convicted, the RBC QPAMs may continue to rely on PTE 84–14 without additional exemptive relief. VerDate Sep<11>2014 17:46 Oct 11, 2016 Jkt 238001 Statutory Findings—In the Interests of Affected Plans and IRAs 22. The Applicant states that an exemption will be in the interest of the affected ERISA-covered plans and IRAs and their participants and beneficiaries. According to the Applicant, there are numerous transactions entered into by RBC QPAMs on behalf of their ERISAcovered plan and IRA clients that require the RBC QPAMs to meet the conditions in PTE 84–14. According to RBC, these include contracts entered into by RBC QPAMs on behalf of or as investment adviser for ERISA-covered plans, collective trusts and other funds subject to ERISA for certain outstanding transactions, including, but not limited to: The purchase and sale of debt and equity securities, and asset-backed securities; the purchase and sale of commodities; real estate financing and leasing arrangements; and certain derivative transactions such as futures, options, swaps, and forwards. 23. The Applicant states that, in the event that the RBC QPAMs can no longer rely on PTE 84–14, counterparties to the above transactions could seek to terminate their contracts, resulting in significant losses to their ERISA-covered plan clients. Furthermore, according to RBC, in the event the Applicant no longer qualifies for relief under the PTE 84–14, many derivatives transactions and other contractual agreements automatically and immediately could be terminated without notice or action. 24. The Applicant states that, without an exemption to continue to rely on PTE 84–14, ERISA-covered plan and IRA clients of RBC QPAMs may be required to seek other investment managers, at significant disruption and cost. RBC states that the process of transitioning to a new manager typically is lengthy, and likely would involve numerous steps each of which could last several months—including retaining a consultant, engaging in the request for proposals, negotiating contracts, and ultimately transitioning assets, as well as the transaction-related expenses incurred in connection with the purchase of securities. 25. Furthermore, the Applicant states, many of the investments of ERISAcovered plan and IRA clients managed by RBC QPAMs could be difficult to transition to a new investment manager, and the transition of certain strategies, such as transitioning from a stable value fund, could create significant disruption for 40l(k) plans. The Applicant maintains that RBC QPAMs’ inability to rely upon PTE 84–14 could result in significant, unplanned redemptions PO 00000 Frm 00007 Fmt 4701 Sfmt 4703 70567 from pooled funds, which would in turn frustrate the QPAMs’ efforts to effectively manage the pooled funds’ assets and harm remaining plan investors by increasing the expense ratios of the investment funds. 26. The Applicant believes that, depending on the strategy, the cost of liquidating assets in connection with transitioning clients to another manager could be significant. Furthermore, transaction costs may be higher in times of significant market volatility, especially with respect to certain strategies. Fixed Income. The Applicant states that RBC QPAMs rely on PTE 84–14 when buying and selling fixed income products. As of June 30, 2015, the total portfolio of accounts managed by the RBC QPAMs that were invested in fixed income products was approximately $4.86 billion in market value. Of that total, approximately $2.82 billion consisted of ERISA-covered assets, and approximately $2.04 billion consisted of public plan assets. According to the Applicant, those accounts are invested in, for example, the following instruments pursuant to various fixed income strategies: Investment-grade bonds, leveraged finance instruments, emerging market sovereign debt, emerging market corporate debt, convertible bonds, multi-asset credit instruments, and short-duration government bonds. Costs of Liquidating Fixed Income. According to the Applicant, if RBC QPAMs could no longer rely on PTE 84– 14, a typical ERISA-covered plan or IRA client of the RBC QPAMs could suffer different liquidation costs depending on the strategy employed within fixed income. For example, investment grade bonds and emerging market sovereign debt could be liquidated for a cost of between 25–50 basis points, not including reinvestment costs. Leveraged finance and emerging market corporate debt may be more difficult to liquidate and costs may range from 50–150 basis points, not including reinvestment costs. The costs of liquidating convertible bonds could be between 50– 75 basis points, and costs of liquidating multi-asset credit could be between 35– 100 basis points, not including reinvestment costs. Statutory Findings—Protective of the Rights of Participants of Affected Plans and IRAs 27. The Applicant proposed certain conditions it believes are protective of the rights of participants and beneficiaries of ERISA-covered plans and IRAs with respect to the transactions described herein. The E:\FR\FM\12OCN3.SGM 12OCN3 70568 Federal Register / Vol. 81, No. 197 / Wednesday, October 12, 2016 / Notices mstockstill on DSK3G9T082PROD with NOTICES3 Department has determined to revise certain of those conditions, and to add certain new conditions, in order to make its required finding that the requested exemption is protective of the rights of participants and beneficiaries of affected plans and IRAs. In this regard, the Department has tentatively determined that the following conditions adequately protect the rights of participants and beneficiaries of affected plans and IRAs with respect to the transactions that would be covered by this temporary exemption, if granted. 28. Several of these conditions highlight the Department’s expectation that the affected RBC QPAMs were not involved in the misconduct by RBCTC Bahamas that is the subject of the Conviction.18 For example, relief under this proposed exemption is only available to the extent: (1) RBC QPAMs, including their officers, directors, agents other than RBC, and employees, did not know of, have reason to know of, or participate in the criminal conduct of RBCTC Bahamas that is the subject of the Conviction (for purposes of this requirement, ‘‘participated in’’ includes the knowing or tacit approval of the misconduct underlying the Conviction); 19 (2) any failure of those QPAMs to satisfy Section I(g) of PTE 84–14 arose solely from the Conviction; and (3) the RBC QPAMs (including their officers, directors, agents other than RBC, and employees of such RBC QPAMs) did not receive direct compensation, or knowingly receive indirect compensation, in connection with the criminal conduct that is the subject of the Conviction. 29. The Department expects the RBC QPAMs to rigorously ensure that the individuals associated with the criminal conduct of RBCTC Bahamas will not be employed or knowingly engaged by such QPAMs. In this regard, the temporary exemption, if granted as proposed, mandates that the RBC QPAMs will not employ or knowingly engage any of the individuals that participated in criminal conduct that is the subject of the Conviction. For purposes of this requirement, ‘‘participated in’’ includes the knowing 18 The Department notes that, at the time of publication of this proposed temporary exemption, RBCTC Bahamas has not been convicted. In the event that RBCTC Bahamas is not convicted, the RBC QPAMs may continue to rely on PTE 84–14 without additional exemptive relief. 19 The Applicant represents that, while certain other entities in the RBC corporate family were generally aware of RBCTC (Bahamas)’s responsibilities, including the administration of various trusts, no such entity was involved in the day-to-day operations of the trusts and, the alleged misconduct did not relate to the asset management services provided by the RBC QPAMs. VerDate Sep<11>2014 17:46 Oct 11, 2016 Jkt 238001 or tacit approval of the misconduct underlying the Conviction. Further, the RBC 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 or the Code and managed by such RBC QPAM, to enter into any transaction with RBCTC Bahamas or engage RBCTC Bahamas to provide any service to such investment fund, for a direct or indirect fee borne by such investment fund, regardless of whether such transaction or service may otherwise be within the scope of relief provided by an administrative or statutory exemption. 30. The RBC QPAMs must comply with each condition of PTE 84–14, as amended, with the sole exceptions of the violation of Section I(g) of PTE 84– 14 that is attributable to the Conviction. Further, any failure of the RBC QPAMs to satisfy Section I(g) of PTE 84–14 arose solely from the Conviction. 31. No relief will be provided by the temporary exemption, if granted, to the extent that any entities holding assets that constitute the assets of an ERISAcovered plan or IRA were involved in the criminal conduct that is the subject of the Conviction. Further, no relief will be provided to the extent RBCTC Bahamas provides any discretionary asset management services to ERISAcovered plans or IRAs, or otherwise acts as a fiduciary with respect to ERISAcovered plan and IRA assets. 32. The Department believes that robust policies and training are warranted where, as here, alleged criminal misconduct has occurred within a corporate organization that is affiliated with one or more QPAMs managing plan investments in reliance on PTE 84–14. Therefore, this proposed temporary exemption, if granted, requires that each RBC QPAM must immediately develop, implement, maintain, and follow written policies (the Policies) requiring and reasonably designed to ensure that: The asset management decisions of the RBC QPAM are conducted independently of the management and business activities of RBC, including RBCTC Bahamas; the RBC QPAM fully complies with ERISA’s fiduciary duties and with 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 RBC QPAM does not knowingly participate in any other person’s violation of ERISA or the Code with respect to ERISAcovered plans and IRAs; any filings or statements made by the RBC QPAM to regulators, including but not limited to, the Department of Labor, the PO 00000 Frm 00008 Fmt 4701 Sfmt 4703 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; the RBC 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; and the RBC QPAM complies with the terms of this temporary exemption, if granted. Any violation of, or failure to comply with these items is corrected promptly upon discovery, and any such violation or compliance failure not promptly corrected is reported, upon discovering the failure to promptly correct, in writing, to appropriate corporate officers, the head of compliance and the General Counsel (or their functional equivalent) of the relevant RBC QPAM, and an appropriate fiduciary of any affected ERISA-covered plan or IRA where such fiduciary is independent of RBC. 33. The Department has also imposed a condition that requires each RBC QPAM to immediately develop and implement a program of training (the Training), for all relevant RBC QPAM asset/portfolio management, trading, legal, compliance, and internal audit personnel. The Training must 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), ethical conduct, the consequences for not complying with the conditions of this temporary exemption, if granted (including any loss of exemptive relief provided herein), and prompt reporting of wrongdoing. 34. This temporary exemption, if granted, requires RBC QPAMs to enter into certain contractual obligations in connection with the provision of services to their clients. It is the Department’s view that the condition for exemptive relief requiring these contractual obligations is essential to the Department’s ability to make its findings that the proposed temporary exemption is protective of the rights of the participants and beneficiaries of ERISA-covered and IRA plan clients of RBC QPAMs under section 408(a) of ERISA. In this regard, Section I(i) of the proposed temporary exemption provides that, as of the effective date of this temporary exemption, if granted, with respect to any arrangement, E:\FR\FM\12OCN3.SGM 12OCN3 mstockstill on DSK3G9T082PROD with NOTICES3 Federal Register / Vol. 81, No. 197 / Wednesday, October 12, 2016 / Notices agreement, or contract between a RBC QPAM and an ERISA-covered plan or IRA for which a RBC QPAM provides asset management or other discretionary fiduciary services, each RBC QPAM must agree: 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 (and to promptly correct any inadvertent prohibited transactions), and to comply with the standards of prudence and loyalty set forth in section 404 of ERISA with respect to each such ERISA-covered plan and IRA; to indemnify and hold harmless the ERISA-covered plan or IRA for any damages resulting from a violation of applicable laws, a breach of contract, or any claim arising out of the failure of such RBC QPAM to qualify for the exemptive relief provided by PTE 84–14 as a result of a violation of Section I(g) of PTE 84–14 other than the Conviction; not to require (or otherwise cause) the ERISA-covered plan or IRA to waive, limit, or qualify the liability of the RBC QPAM for violating ERISA or the Code or engaging in prohibited transactions; not to require the ERISA-covered plan or IRA (or sponsor of such ERISAcovered plan or beneficial owner of such IRA) to indemnify the RBC 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 RBC; not to restrict the ability of such ERISAcovered plan or IRA to terminate or withdraw from its arrangement with the RBC QPAM (including any investment in a separately managed account or pooled fund subject to ERISA and managed by such 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 as a result of an actual lack of liquidity of the underlying assets, provided that such restrictions are applied consistently and in like manner to all such investors; and 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 VerDate Sep<11>2014 17:46 Oct 11, 2016 Jkt 238001 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. Furthermore, any contract, agreement or arrangement between an RBC QPAM and its ERISAcovered plan or IRA client must not contain exculpatory provisions disclaiming or otherwise limiting liability of the RBC QPAM for a violation of such agreement’s terms. 35. Within six (6) months of the date of publication of a notice of temporary exemption in the Federal Register, if granted, each RBC QPAM will: Provide a notice of its obligations under Section I(i) to each ERISA-covered plan and IRA for which the RBC QPAM provides asset management or other discretionary fiduciary services; and separately warrant in writing to each such ERISAcovered plan and IRA its obligations under subparagraph (1) of Section I(i). 36. Each RBC QPAM must maintain records necessary to demonstrate that the conditions of this temporary exemption, if granted, have been met for six (6) years following the date of any transaction for which such RBC QPAM relies upon the relief in the temporary exemption. 37. Furthermore, the proposed temporary exemption mandates that, during the effective period of this temporary exemption, if granted, neither RBCTC Bahamas nor any affiliate enters into a Deferred Prosecution Agreement (a DPA) or a Non-Prosecution Agreement (an NPA) with the Department of Justice, in connection with conduct described in section I(g) of PTE 84–14 or section 411 of ERISA. The Applicant represents that, with the exception of an investigation for LIBOR manipulation, RBC is not the subject of any current investigation involving criminal authorities.20 Furthermore, the Applicant represents that RBC currently does not have a reasonable basis to believe that there are any pending criminal investigations involving RBC or any of its affiliated companies that would cause a reasonable plan or IRA customer not to hire or retain the institution as a QPAM. 38. The proposed exemption, if granted, would provide relief from certain of the restrictions set forth in Section 406 and 407 of ERISA. Such a granted exemption would not provide relief from any other violation of law, including any criminal conviction not expressly described herein. Pursuant to 20 The Applicant states that RBC has been the subject of demands for information from various governmental and regulatory authorities. PO 00000 Frm 00009 Fmt 4701 Sfmt 4703 70569 the terms of this proposed exemption, if granted, any criminal conviction not expressly described herein, but otherwise described in Section I(g) of PTE 84–14 and attributable to the applicant for purposes of PTE 84–14, would result in the applicant’s loss of this exemption, if granted. Summary 39. Given the revised and new conditions described above, the Department has tentatively determined that the relief sought by the Applicants satisfies the statutory requirements for an exemption under section 408(a) of ERISA. Notice to Interested Persons Written comments and requests for a public hearing on the proposed temporary exemption should be submitted to the Department within seven (7) days from the date of publication of this Federal Register Notice. Given the short comment period, the Department will consider comments received after such date, in connection with its consideration of more permanent relief. Warning: Do not include any personally identifiable information (such as name, address, or other contact information) or confidential business information that you do not want publicly disclosed. All comments may be posted on the Internet and can be retrieved by most Internet search engines. Ms. Anna Mpras Vaughan of the Department, telephone (202) 693–8565. (This is not a toll-free number.) FOR FURTHER INFORMATION CONTACT: Northern Trust Corporation (Together With Its Current and Future Affiliates, Northern or the Applicant), Located in Chicago, Illinois [Exemption Application No. D–11875] Proposed Temporary Exemption The Department is considering granting a temporary exemption under the authority of section 408(a) of the Employee Retirement Income Security Act of 1974, as amended, (ERISA or the Act) and section 4975(c)(2) of the Internal Revenue Code of 1986, as amended (the Code), and in accordance with the procedures set forth in 29 CFR part 2570, subpart B (76 FR 66637, 66644, October 27, 2011).21 21 For purposes of this proposed temporary exemption, references to section 406 of Title I of the Act, unless otherwise specified, should be read to refer as well to the corresponding provisions of section 4975 of the Code. E:\FR\FM\12OCN3.SGM 12OCN3 70570 Federal Register / Vol. 81, No. 197 / Wednesday, October 12, 2016 / Notices mstockstill on DSK3G9T082PROD with NOTICES3 Section I: Covered Transactions If the proposed temporary exemption is granted, certain entities with specified relationships to Northern Trust Fiduciary Services (Guernsey) ltd. (hereinafter, the Northern QPAMs, as further defined in Section II(b)) will not be precluded from relying on the exemptive relief provided by Prohibited Transaction Class Exemption 84–14 (PTE 84–14),22 notwithstanding a judgment of conviction against Northern Trust Fiduciary Services (Guernsey) ltd. to be entered in France in the District Court of Paris, for aiding and abetting tax fraud (the Conviction, as further defined in Section II(a)),23 for a period of up to twelve months beginning on the date of the Conviction (the Conviction Date), provided that the following conditions are satisfied: (a) The Northern QPAMs (including their officers, directors, agents other than Northern, and employees of such Northern QPAMs) did not know of, have reason to know of, or participate in the criminal conduct of NTFS that is the subject of the Conviction (for purposes of this paragraph (a), ‘‘participate in’’ includes the knowing or tacit approval of the misconduct underlying the Conviction); (b) The Northern QPAMs (including their officers, directors, agents other than Northern, and employees of such Northern QPAMs) did not receive direct compensation, or knowingly receive indirect compensation, in connection with the criminal conduct that is the subject of the Conviction; (c) The Northern QPAMs will not employ or knowingly engage any of the individuals that participated in the criminal conduct that is the subject of the Conviction (for purposes of this paragraph (c), ‘‘participated in’’ includes the knowing or tacit approval of the misconduct underlying the Conviction); (d) A Northern 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 or the Code and managed by such Northern QPAM, to enter into any transaction with NTFS or engage NTFS to provide any service to 22 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). 23 Section I(g) of PTE 84–14 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 aiding and abetting tax evasion. VerDate Sep<11>2014 17:46 Oct 11, 2016 Jkt 238001 such investment fund, for a direct or indirect fee borne by such investment fund, regardless of whether such transaction or service may otherwise be within the scope of relief provided by an administrative or statutory exemption; (e) Any failure of the Northern QPAMs to satisfy Section I(g) of PTE 84–14 arose solely from the Conviction; (f) No entities holding assets that constitute the assets of any plan subject to Part 4 of Title I of ERISA (an ERISAcovered plan) or section 4975 of the Code (an IRA) were involved in the criminal conduct that is the subject of the Conviction; (g) NTFS has not provided nor will provide discretionary asset management services to ERISA-covered plans or IRAs, or otherwise will act as a fiduciary with respect to ERISA-covered plan and IRA assets; (h)(1) Each Northern QPAM must immediately develop, implement, maintain, and follow written policies (the Policies) requiring and reasonably designed to ensure that: (i) The asset management decisions of the Northern QPAM are conducted independently of the management and business activities of Northern, including NTFS and Northern’s nonasset management affiliates; (ii) The Northern QPAM fully complies with ERISA’s fiduciary duties and with 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 Northern 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 Northern 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 ERISAcovered plans or IRAs are materially accurate and complete, to the best of such QPAM’s knowledge at that time; (v) The Northern 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 Northern QPAM complies with the terms of this temporary exemption, if granted; and PO 00000 Frm 00010 Fmt 4701 Sfmt 4703 (vii) Any violation of, or failure to comply with, an item in subparagraph (ii) through (vi), is corrected promptly upon discovery, and any such violation or compliance failure not promptly corrected is reported, upon discovering the failure to promptly correct, in writing, to appropriate corporate officers, the head of compliance and the General Counsel (or their functional equivalent) of the relevant Northern QPAM, and an appropriate fiduciary of any affected ERISA-covered plan or IRA where such fiduciary is independent of Northern; 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 Northern or beneficially owned by an employee of Northern or its affiliates, such fiduciary does not need to be independent of Northern. A Northern QPAM will not be treated as having failed to develop, implement, maintain, or follow the Policies, provided that it corrects any instance of noncompliance promptly when discovered or when it reasonably should have known of the noncompliance (whichever is earlier), and provided that it adheres to the reporting requirements set forth in this subparagraph (vii); (2) Each Northern QPAM must immediately develop and implement a program of training (the Training), conducted at least annually, for all relevant Northern QPAM asset/portfolio management, trading, legal, compliance, and internal audit personnel. The Training must 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), ethical conduct, the consequences for not complying with the conditions of this temporary exemption, if granted (including any loss of exemptive relief provided herein), and prompt reporting of wrongdoing; (i) Effective as of the effective date of this temporary exemption, if granted, with respect to any arrangement, agreement, or contract between a Northern QPAM and an ERISA-covered plan or IRA for which a Northern QPAM provides asset management or other discretionary fiduciary services, each Northern QPAM agrees: (1) To comply with ERISA and the Code, as applicable with respect to such ERISA-covered plan or IRA; to refrain from engaging in prohibited transactions that are not otherwise exempt (and to promptly correct any inadvertent prohibited transactions); and to comply with the standards of prudence and loyalty set forth in section 404 of ERISA E:\FR\FM\12OCN3.SGM 12OCN3 mstockstill on DSK3G9T082PROD with NOTICES3 Federal Register / Vol. 81, No. 197 / Wednesday, October 12, 2016 / Notices with respect to each such ERISAcovered plan and IRA; (2) Not to require (or otherwise cause) the ERISA-covered plan or IRA to waive, limit, or qualify the liability of the Northern 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 ERISAcovered plan or beneficial owner of such IRA) to indemnify the Northern 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 Northern; (4) Not to restrict the ability of such ERISA-covered plan or IRA to terminate or withdraw from its arrangement with the Northern QPAM (including any investment in a separately managed account or pooled fund subject to ERISA and managed by such 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 as a result of an actual lack of liquidity of the underlying assets, provided that such restrictions are applied consistently and in like manner to all such investors; (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; (6) Not to include exculpatory provisions disclaiming or otherwise limiting liability of the Northern QPAM for a violation of such agreement’s terms; and (7) To indemnify and hold harmless the ERISA-covered plan or IRA for any damages resulting from a violation of applicable laws, a breach of contract, or any claim arising out of the failure of such Northern QPAM to qualify for the exemptive relief provided by PTE 84–14 as a result of a violation of Section I(g) of PTE 84–14 other than the Conviction. Within six (6) months of the date of publication of a notice of temporary VerDate Sep<11>2014 17:46 Oct 11, 2016 Jkt 238001 exemption in the Federal Register, if granted, each Northern QPAM will: Provide a notice of its obligations under this Section I(i) to each ERISA-covered plan and IRA for which a Northern QPAM provides asset management or other discretionary fiduciary services; and separately warrant in writing to each such ERISA-covered plan and IRA its obligations under subparagraph (1) of this Section I(i); (j) The Northern QPAMs comply with each condition of PTE 84–14, as amended, with the sole exceptions of the violations of Section I(g) of PTE 84– 14 that are attributable to the Conviction; (k) Each Northern QPAM will maintain records necessary to demonstrate that the conditions of this temporary exemption, if granted, have been met, for six (6) years following the date of any transaction for which such Northern QPAM relies upon the relief in the temporary exemption, if granted; (l) During the effective period of this temporary exemption, if granted, neither Northern nor any affiliate enters into a Deferred Prosecution Agreement (a DPA) or a Non-Prosecution Agreement (an NPA) with the U.S Department of Justice, in connection with conduct described in Section I(g) of PTE 84–14 or section 411 of ERISA; and (m) A Northern QPAM will not fail to meet the terms of this temporary exemption, if granted, solely because a different Northern QPAM fails to satisfy a condition for relief under this temporary exemption, if granted, described in Sections I(c), (d), (h), (i), (j), and (k). Section II: Definitions (a) The term ‘‘Conviction’’ means the potential judgment of conviction against NTFS for aiding and abetting tax fraud to be entered in France in the District Court of Paris, French Special Prosecutor No. 1120392066, French Investigative Judge No. JIRSIF/11/12; (b) The term ‘‘Northern QPAM’’ means a ‘‘qualified professional asset manager’’ (as defined in section VI(a) 24 of PTE 84–14) that relies on the relief provided by PTE 84–14 and with respect to which NTFS is a current or future ‘‘affiliate’’ (as defined in section VI(d) of PTE 84–14); (c) The term ‘‘NTFS’’ means Northern Trust Fiduciary Services (Guernsey) ltd., 24 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. PO 00000 Frm 00011 Fmt 4701 Sfmt 4703 70571 an affiliate’’ of Northern (as defined in section VI(c) of PTE 84–14) located in Guernsey; (d) The terms ‘‘ERISA-covered plan’’ and ‘‘IRA’’ mean, respectively, a plan subject to Part 4 of Title I of ERISA and a plan subject to section 4975 of the Code; and (e) The term ‘‘Northern’’ means Northern Trust Corporation, together with its current and future affiliates. Effective Date: This proposed temporary exemption, if granted, will be effective for the period beginning on the Conviction Date until the earlier of: The date that is twelve months following the Conviction Date; or the effective date of a final agency action made by the Department in connection with an application for long-term exemptive relief for the covered transactions described herein. Department’s Comment: The Department is publishing this proposed temporary exemption in order to protect ERISA-covered plans and IRAs from certain costs and/or investment losses that may arise to the extent entities with a corporate relationship to NTFS lose their ability to rely on PTE 84–14 as of the Conviction Date, as described below. The proposed exemption, if granted, would provide relief from certain of the restrictions set forth in sections 406 and 407 of ERISA. No relief from a violation of any other law would be provided by this exemption, if granted, including any criminal conviction described herein. Furthermore, the Department cautions that the relief in this proposed exemption, if granted, would terminate immediately if, among other things, an entity within the Northern corporate structure is convicted of a crime described in Section I(g) of PTE 84–14 (other than the Conviction) during the effective period of the exemption. While such an entity could apply for a new exemption in that circumstance, the Department would not be obligated to grant the exemption. The terms of this proposed exemption have been specifically designed to permit plans to terminate their relationships in an orderly and cost effective fashion in the event of an additional conviction or a determination that it is otherwise prudent for a plan to terminate its relationship with an entity covered by the proposed exemption. Summary of Facts and Representations Background 1. Northern Trust Corporation (together with its current and future affiliates, Northern or the Applicant) is a financial holding company that E:\FR\FM\12OCN3.SGM 12OCN3 mstockstill on DSK3G9T082PROD with NOTICES3 70572 Federal Register / Vol. 81, No. 197 / Wednesday, October 12, 2016 / Notices provides investment management, asset and fund administration, fiduciary, and banking services for corporations, institutions, and affluent individuals. Northern conducts business through various U.S. and non-U.S. subsidiaries, including The Northern Trust Company (the Bank), an Illinois bank headquartered in Chicago, Illinois. 2. The Bank was founded in 1889 and conducts its business through its U.S. operations, its branches in Toronto, London, Australia, Beijing, the Cayman Islands and Singapore, as well as various U.S. and non-U.S. subsidiaries. The Bank is a member of the Federal Reserve System, its deposits are insured by the Federal Deposit Insurance Corporation and it is subject to regulation by both such entities, as well as the Division of Banking of the Illinois Department of Financial and Professional Regulation. As of December 31, 2015, Northern had a total of 16,200 active employees, including 7,990 employees of the Bank. As of the same date, Northern had consolidated assets of approximately $117 billion. Of that consolidated figure, approximately $116 billion are assets of the Bank. In addition, as of December 31, 2015, Northern had assets under custody of approximately $6.1 trillion, and assets under management of approximately $875 billion. 3. The Bank has a significant trust and custody business and acts as trustee for employee benefit plans subject to Part 4 of Title I of ERISA (ERISA-covered plans), individual retirement accounts subject to section 4975 of the Code (IRAs) and other accounts subject to ERISA or Section 4975 of the Code. The Bank also maintains ERISA-governed collective investment trusts and other commingled vehicles for investment of pension assets. Northern also has a number of direct and indirect subsidiary registered investment advisers that are subject to the Investment Advisers Act of 1940 and that provide discretionary investment management services to ERISA and IRA customers. 4. Northern Trust Fiduciary Services (Guernsey) ltd. (NTFS) is an indirect wholly-owned subsidiary of Northern. NTFS is incorporated in Guernsey, and is regulated by the Guernsey Financial Services Commission. NTFS currently provides trust and company management and administration services to international clients. NTFS currently employs 22.6 full-time equivalents, and has reported revenues of GBP 5 million (approximately $7 million) in fiscal year 2015. As of the second quarter of 2016, NTFS reported total assets under trusteeship of GBP 32 billion (approximately $ 42 billion), VerDate Sep<11>2014 17:46 Oct 11, 2016 Jkt 238001 which includes cash, real estate, art, securities, and interests in privately held companies. NTFS is not engaged in asset management activities for, and does not act as a fiduciary of, any ERISA plan or IRA. 5. The trust and company management and administration services provided by NTFS include ongoing interaction with the settlor and beneficiaries, investment managers and advisors, and the settlor’s legal counsel, among others. NTFS also may appoint individual directors that are personnel of NTFS, if required, or more commonly corporate directors (entities wholly owned by NTFS) to act as the directors of some of the underlying holding companies owned by the trusts for which NTFS acts as trustee. These companies hold assets (which could include cash, marketable securities, privately held companies, art, real estate and other property). 6. The services provided by NTFS may include the provision of corporate secretarial support for companies created by its clients. In addition, NTFS is required to keep the accounts of the trusts to which it is appointed, and may also maintain the financial records of the asset holding companies it administers. Financial information may be provided to the settlor or beneficiaries on request, to the extent permitted by applicable law and the documentation governing NTFS’ appointment. In addition, at the request of a client or based on their fiduciary powers as trustee, NTFS will, among other things, act as directed or discretionary trustee, appoint investment advisers or managers, and exercise all duties, responsibilities and powers as set out in the documentation governing NTFS’s appointment and attend to all day to day administrative issues. NTFS operates based on internal policies and procedures of the Northern, and is subject to internal audit to ascertain compliance. NTFS is managed by a board of directors, which meets at least quarterly. In addition, the board has delegated certain powers to an Acceptance Committee for consideration of new business, a Fiduciary Committee for the review of the companies’ fiduciary activities, a Discretionary Committee for consideration of the exercise of discretionary powers by NTFS as trustee and a Risk Committee for consideration and management of risks. Investigation for Tax Fraud 7. The Applicant has applied for an exemption in relation to a potential judgment of conviction against NTFS for PO 00000 Frm 00012 Fmt 4701 Sfmt 4703 aiding and abetting tax fraud, to be entered in France in the District Court of Paris, French Special Prosecutor No. 1120392066, French Investigative Judge No. JIRSIF/11/12 (the Conviction). The facts forming the basis of the Conviction reach back several years and involve investigations by French prosecutors. In 2010, French prosecutors opened judicial investigations questioning whether Guy Wildenstein and Alec Daniel Armand Wildenstein (the Wildensteins), heirs to a set of trusts established by family patriarch Daniel Wildenstein, had engaged in money laundering, bankruptcy-related fraud, forgery and/or tax evasion in connection with their decision not to include trust assets in French tax filings made following Daniel Wildenstein’s death in 2001. NTFS, as successor trustee to the trusts, was itself investigated by French prosecutors. 8. On April 9, 2015, the investigating authorities for the District Court of Paris issued an Order of Partial Discharge and Referral before the Criminal Court (the Referral Order). The Referral Order charges both Guy and Alec Wildenstein with several counts of tax fraud for failing to disclose, and pay taxes on, assets held in various trusts following the 2001 death of their father, Daniel Wildenstein. One of eight defendants in the Referral Order, NTFS is charged with violations of Articles 121–2, 121– 6, and 121–7 of the French Criminal Code, and Articles 1741 et 1745 of the French General Tax Code for alleged complicity in the Wildensteins’ alleged tax fraud based on assets held in trust for certain beneficiaries, including the Wildensteins. The portion of the case relevant to NTFS relates to assets held in two Guernsey trusts for which NTFS served as successor trustee since 1999: 25 the ‘‘1989 Sonstrust’’ (the Sons Trust) and the ‘‘1989 Davidtrust’’ (the David Trust). The trusts include properties located in Kenya, the British Virgin Islands, 740 Madison Avenue and 19 East 64th Street in New York City, shares of Wildenstein and Co Inc., and of various art galleries. The French authorities state that their investigation produced sufficient information to allege that NTFS, in Guernsey, beginning in September 1999, aided and abetted tax fraud committed in Paris by Daniel Wildenstein’s heirs through the alleged concealment of a portion of the assets that the French state are subject to French estate taxes owed by the Wildensteins. 9. According to the Applicant, the pertinent facts that underlie these 25 Northern acquired Baring Trustees (Guernsey) Limited in 2005, and thereafter renamed it NTFS. E:\FR\FM\12OCN3.SGM 12OCN3 mstockstill on DSK3G9T082PROD with NOTICES3 Federal Register / Vol. 81, No. 197 / Wednesday, October 12, 2016 / Notices charges, as set out in the Referral Order, are as follows: On February 23, 1989, Daniel Wildenstein established two irrevocable and discretionary trusts in Bermuda, the Sons Trust and the David Trust. Bermuda Trust Company Limited was appointed as trustee. The Sons Trust was incorporated for the benefit of the children of Daniel Wildenstein, Guy and Alec, and of his second wife, Sylvia Roth-Wildenstein. The David Trust was incorporated for the benefit of the grandchildren of Daniel Wildenstein. In September 1999, Baring Trustees (Guernsey) Limited became the trustee of these two trusts, replacing Baring Brothers (Guernsey) Limited, which had been the trustee since 1990, replacing Bermuda Trust Company Limited. The Applicant states that, in 2005, following the purchase of Baring’s financial institutions group by the Northern Trust group, Baring Trustees (Guernsey) Limited became Northern Trust Fiduciary Services (Guernsey) Limited. On October 21, 2001, Daniel Wildenstein died in Paris. On April 28, 2002, Guy Wildenstein and his brother, Alec Wildenstein Sr., filed an inheritance tax statement in relation to their father Daniel Wildenstein’s estate. The statement did not identify the Sons Trust and the David Trust or the assets held by these trusts. 10. The Applicant represents that, according to the French authorities, the existence of the Sons Trust and David Trust, as well as the assets of these trusts, should have been disclosed by the Wildensteins when they filed their inheritance tax statement. The French state that these assets are subject to French taxes, and that an inheritance tax would have been imposed on these assets. 11. The Applicant represents that the French authorities’ position is that the Sons Trust and David Trust contained assets that the Wildensteins were required to identify because the trusts are, in their view, non-discretionary. In this regard, the Referral Order describes the following allegations made by the French prosecutor: • The assets placed within the trusts are held by companies, and the trustee does not have sufficient control of the companies or the assets. • Daniel Wildenstein was co-trustee, and during his lifetime he could have asked the trustee to distribute all of the trusts’ assets to the beneficiaries. • In addition to naming a trustee, the trust deeds also named an individual to fulfill the role of ‘‘protector’’ of the trusts, a Wildenstein family attorney who was financially dependent upon the family. VerDate Sep<11>2014 17:46 Oct 11, 2016 Jkt 238001 • The protector permitted certain financial flows debited from the Sons Trust bank account without the trustee’s consent, and these money flows were later re-characterized as loans. • The trusts operated abnormally and there was some commingling between the trusts’ assets and Daniel Wildenstein’s assets. • The trustee’s fees were too low in relation to the value of the assets in the trusts, and the assets were actually managed by companies without supervision by the trustee. 12. NTFS contests its liability for aiding and abetting tax evasion. The trial commenced on January 4, 2016. On January 6, 2016, the Criminal Court of Paris suspended the proceeding to probe the trial’s constitutionality. The trial resumed on September 22, 2016. The Applicant expects the trial to end on October 20, 2016. 13. The Applicant represents that on the last day of trial, the court will announce when it will render its decision (generally a few weeks later). The Applicant states that the parties will have 10 days from the conviction ruling/decision date to lodge an appeal. Further, the Applicant states that if appeals are lodged, any criminal judgment issued after the trial will remain non-final until the appellate process concludes. In addition, the Applicant states that if none of the parties lodges an appeal, the criminal judgment will be final. Significance of Class PTE 84–14 and the Violation of Condition I(g) of PTE 84–14 14. The Department notes that the rules set forth in section 406 of the Employee Retirement Income Security Act of 1974, as amended (ERISA) and section 4975(c) of the Internal Revenue Code of 1986, as amended (the Code) proscribe certain ‘‘prohibited transactions’’ between plans and related parties with respect to those plans, known as ‘‘parties in interest.’’ 26 Under the authority of section 408(a) of ERISA and section 4975(c)(2) of the Code, the Department has the authority to grant exemptions from such ‘‘prohibited transactions’’ in accordance with the procedures set forth in 29 CFR part 2570, subpart B (76 FR 66637, 66644, October 27, 2011). 15. Class Prohibited Transaction Exemption 84–14 (PTE 84–14) 27 26 For purposes of the Summary of Facts and Representations, references to specific provisions of Title I of ERISA, unless otherwise specified, refer also to the corresponding provisions of the Code. 27 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). PO 00000 Frm 00013 Fmt 4701 Sfmt 4703 70573 exempts certain prohibited transactions between a party in interest and an ‘‘investment fund’’ (as defined in Section VI(b) of that exemption) 28 in which a plan has an interest, if the investment manager satisfies the definition of ‘‘qualified professional asset manager’’ (QPAM) and satisfies additional conditions for the exemption. PTE 84–14 was developed and granted based on the essential premise that broad relief could be afforded for all types of transactions in which a plan engages only if the commitments and the investments of plan assets and the negotiations leading thereto are the sole responsibility of an independent, discretionary, manager.29 16. However, Section I(g) of PTE 84– 14 prevents an entity that may otherwise meet the definition of ‘‘QPAM’’ from utilizing the exemptive relief provided by PTE 84–14, for itself and its client plans, if that entity or an ‘‘affiliate’’ 30 thereof or any owner, direct or indirect, of a 5 percent or more interest in the QPAM has, within 10 years immediately preceding the transaction, been either convicted or released from imprisonment, whichever is later, as a result of certain specified criminal activity described in that section.31 The Department notes that Section I(g) was included in PTE 84–14, in part, based on the expectation that a QPAM, and those who may be in a position to influence its policies, maintain a high standard of integrity.32 Accordingly, in the event that NTFS is convicted of the crimes alleged in the Referral Order, certain Northern asset managers that rely on the relief 28 An ‘‘investment fund’’ includes single customer and pooled separate accounts maintained by an insurance company, individual trusts and common, collective or group trusts maintained by a bank, and any other account or fund to the extent that the disposition of its assets (whether or not in the custody of the QPAM) is subject to the discretionary authority of the QPAM. 29 See 75 FR 38837, 38839 (July 6, 2010). 30 Section VI(d) of PTE 84–14 defines the term ‘‘affiliate’’ for purposes of Section I(g) as ‘‘(1) Any person directly or indirectly through one or more intermediaries, controlling, controlled by, or under common control with the person, (2) Any director of, relative of, or partner in, any such person, (3) Any corporation, partnership, trust or unincorporated enterprise of which such person is an officer, director, or a 5 percent or more partner or owner, and (4) Any employee or officer of the person who—(A) Is a highly compensated employee (as defined in Section 4975(e)(2)(H) of the Code) or officer (earning 10 percent or more of the yearly wages of such person), or (B) Has direct or indirect authority, responsibility or control regarding the custody, management or disposition of plan assets.’’ 31 For purposes of Section I(g) of PTE 84–14, a person shall be deemed to have been ‘‘convicted’’ from the date of the judgment of the trial court, regardless of whether that judgment stands on appeal. 32 See 47 FR 56945, 56947 (December 21, 1982). E:\FR\FM\12OCN3.SGM 12OCN3 70574 Federal Register / Vol. 81, No. 197 / Wednesday, October 12, 2016 / Notices provided by PTE 84–14 (the Northern QPAMs) and with respect to which NTFS is a current or future ‘‘affiliate’’ (as defined in section VI(d) of PTE 84– 14), as well as their client ERISAcovered plans and IRAs will no longer be able to rely on PTE 84–14 without an additional individual exemption issued by the Department. Northern QPAMs 17. The investment management businesses that are operated out of the Northern QPAMs are separate from NTFS, and from the activities of NTFS that are the subject of criminal charges under French law. The Northern QPAMs have dedicated systems, management, risk and compliance officers. The investment management businesses of the Northern QPAMs are subject to codes of conduct, and Northern QPAM personnel engage in training, designed to ensure that such businesses understand and abide by their fiduciary duties in accordance with applicable law. The codes of conduct create information barriers designed to prevent employees of the Northern QPAMs from gaining access to inside information that an affiliate may have acquired or developed in connection with the investment banking, treasury services or other investor services business activities. These codes of conduct apply to employees, officers and directors of the Northern QPAMs. The Applicant also maintains an employee hotline for employees to anonymously express any concerns of wrongdoing. mstockstill on DSK3G9T082PROD with NOTICES3 Changes Made by Northern Since Its Acquisition of Baring Trustees (Guernsey) Limited 18. The Applicant represents that all personnel involved in taking on the Wildenstein business or that had any dealings with such matters at the time of the alleged misconduct have long since left NTFS, either before or around the time of the Northern acquisition of Baring Trustees (Guernsey) Limited in 2005 or some years before the criminal trial started.33 Furthermore, the 33 The Applicant represents that no NTFS employees (or former employees of Baring Trustees (Guernsey) Limited) were investigated or charged, nor were any other corporate entities related to NTFS investigated or charged. The Applicant states that the individual who appears to have been the primary contact for the Wildenstein business after NTFS acquired Baring Trustees (Guernsey) Limited was Nigel de La Rue (a former employee of Baring Trustees (Guernsey) Limited) who is not charged in the French proceeding and who left NTFS in January 2006, shortly after the acquisition. Further, the Applicant represents that other individuals at Baring Trustees (Guernsey) Limited and NTFS assisted in managing the Wildenstein accounts, and that all personnel involved in taking on the VerDate Sep<11>2014 17:46 Oct 11, 2016 Jkt 238001 Applicant states that Northern’s review of the files has not identified any wrongdoing on the part of current or former NTFS staff, nor are any current or former NTFS (or Baring Trustees (Guernsey) Limited) employees among the six individuals charged by the French prosecutors in connection with the Wildenstein business. 19. The Applicant represents that new policies, procedures and training came into effect since Northern’s acquisition of Baring Trustees (Guernsey) Limited in 2005, several years after the events that are the subject of the French prosecution occurred. Upon becoming a part of the Northern organization, Baring Trustees (Guernsey) Limited was renamed NTFS and became subject to Northern’s own internal control procedures designed to prevent improper activities. The Applicant represents that NTFS has complied (and will continue to comply) with all applicable legal and regulatory requirements, including but not limited to requirements potentially linked to the alleged conduct underlying the charges against NTFS. The Applicant further represents that resources dedicated to maintaining risk and compliance procedures have been enhanced significantly since Northern’s acquisition of Baring Trustees (Guernsey) Limited in 2005. Hundreds of new risk and compliance personnel have been hired by Northern in that period. For example, according to the Applicant, at the time of the acquisition of Baring Trustees (Guernsey) Limited (and the Wildenstein relationship) in 2005, Northern had five full-time equivalent employees handling compliance with anti-money laundering (‘‘AML’’) regulations; as of December 31, 2015 that number had increased to 78 full-time equivalent employees. 20. The Applicant represents that it maintains a system of internal controls to ensure ongoing compliance with AML and know-your-client related regulations. According to the Applicant, one of the key controls is the implementation of risk-based, comprehensive customer due diligence policies, procedures and processes for all customers, particularly those that present a high risk for money laundering or terrorist financing. Northern has also adopted Global Wildenstein business, or dealing with matters even potentially related to the alleged misconduct, have long since left the company, many before or around the time of the Northern acquisition of Baring Trustees (Guernsey) Limited in 2005. In addition, the Applicant represents that others departed NTFS in the years thereafter, before the criminal charge was levied. The Applicant confirms that none of these persons is employed by NTFS or other Northern affiliates today. PO 00000 Frm 00014 Fmt 4701 Sfmt 4703 Minimum Standards for Customer Due Diligence for its clients as a critical part of its Global AML/Economic Sanctions Compliance Program. 21. The Applicant represents that it has new systems for evaluating new clients or acquisitions. Northern represents that it assesses the money laundering and related risks of each new client relationship. Northern represents that it has developed a Global AntiMoney Laundering & Combating the Financing of Terrorism Risk Rating Policy & Methodology to evaluate new client/business relationships and assess their money laundering risk and related risks. In addition, Northern represents that it utilizes a Client Relationship Form to collect the information necessary to assess the client risk rating. Clients will initially be risk rated during the client take-on process and subsequently as the client profile changes. Request for Relief 22. At the time of this proposed temporary exemption, NTFS has not been convicted and therefore its conduct has not been determined to be criminal. Moreover, NTFS maintains that it engaged in no criminal conduct and it is mounting a defense in the French proceeding. Nevertheless, the Applicant states that if the Paris Criminal Court issues a Conviction of NTFS, the Northern QPAMs will be in violation of Section I(g) of PTE 84–14. In the event that the condition in Section I(g) of PTE 84–14 is violated, the Northern QPAMs can no longer rely on PTE 84–14 without a separate individual prohibited transaction exemption. Therefore, the Applicant has requested an exemption to allow the Northern QPAMs to continue to use PTE 84–14, notwithstanding such Conviction.34 Statutory Findings—Administratively Feasible 23. The Applicant states that the proposed exemption is administratively feasible because it does not require any monitoring by the Department. Furthermore, the exemption’s limited effective duration provides the Department the opportunity to make its determination whether or not long-term exemptive relief is warranted, without causing sudden and potentially costly harm to ERISA-covered plans and IRAs. 34 The Department notes that, in the event that NTFS is not convicted, the Northern QPAMs may continue to rely on PTE 84–14 without additional exemptive relief. E:\FR\FM\12OCN3.SGM 12OCN3 mstockstill on DSK3G9T082PROD with NOTICES3 Federal Register / Vol. 81, No. 197 / Wednesday, October 12, 2016 / Notices Statutory Findings—In the Interests of Affected Plans and IRAs 24. The Applicant states that an exemption will be in the interest of the affected ERISA-covered plans and IRAs and their participants and beneficiaries. According to the Applicant, there are numerous transactions entered into by Northern QPAMs on behalf of their ERISA-covered plan and IRA clients that require the Northern QPAMs to meet the conditions in PTE 84–14. According to Northern, these include contracts entered into by Northern QPAMs on behalf of or as investment adviser for ERISA-covered plans, collective trusts and other funds subject to ERISA for certain outstanding transactions, including, but not limited to: the purchase and sale of debt and equity securities, and asset-backed securities; the purchase and sale of commodities; real estate financing and leasing arrangements; and certain derivative transactions such as swaps and forwards. 25. The Applicant states that, in the event that the Northern QPAMs can no longer rely on PTE 84–14, counterparties to the above transactions could seek to terminate their contracts, resulting in significant losses to their ERISA-covered plan clients. Furthermore, according to Northern, in the event the Applicant no longer qualifies for relief under the PTE 84–14, many derivatives transactions and other contractual agreements automatically and immediately could be terminated without notice or action. 26. The Applicant states that, without an exemption to continue to rely on PTE 84–14, ERISA-covered plan and IRA clients of Northern QPAMs may be required to seek other investment managers, at significant disruption and cost. Northern states that the process of transitioning to a new manager typically is lengthy, and likely would involve numerous steps each of which could last several months—including retaining a consultant, engaging in the request for proposals, negotiating contracts, and ultimately transitioning assets, as well as the transaction-related expenses incurred in connection with the purchase of securities. 27. Furthermore, the Applicant states, many of the investments of ERISAcovered plan and IRA clients managed by Northern QPAMs could be difficult to transition to a new investment manager, and the transition of certain strategies, such as transitioning from a stable value fund, could create significant disruption for 40l(k) plans. The Applicant maintains that Northern QPAMs’ inability to rely upon PTE 84– VerDate Sep<11>2014 17:46 Oct 11, 2016 Jkt 238001 14 could result in significant, unplanned redemptions from pooled funds, which would in turn frustrate the QPAMs’ efforts to effectively manage the pooled funds’ assets and harm remaining plan investors by increasing the expense ratios of the investment funds. 28. The Applicant believes that, depending on the strategy, the cost of liquidating assets in connection with transitioning clients to another manager could be significant. Furthermore, transaction costs may be higher in times of significant market volatility, especially with respect to certain strategies. 29. Costs of Liquidating Fixed Income. According to the Applicant, if Northern QPAMs could no longer rely on PTE 84– 14, a typical ERISA-covered plan or IRA client of the Northern QPAMs could suffer different liquidation costs depending on the strategy employed within fixed income. For example, investment grade bonds and emerging market sovereign debt could be liquidated for a cost of between 25–50 basis points, not including reinvestment costs. Leveraged finance and emerging market corporate debt may be more difficult to liquidate and costs may range from 50–150 basis points, not including reinvestment costs. The costs of liquidating convertible bonds could be between 50–75 basis points, and costs of liquidating multi-asset credit could be between 35–100 basis points, not including reinvestment costs. Statutory Findings—Protective of the Rights of Participants of Affected Plans and IRAs 30. The Applicant proposed certain conditions it believes are protective of the rights of participants and beneficiaries of ERISA-covered plans and IRAs with respect to the covered transactions described herein. The Department has determined to revise certain of those conditions, and to add certain new conditions, in order to make its required finding that the requested exemption is protective of the rights of participants and beneficiaries of affected plans and IRAs. In this regard, the Department has tentatively determined that the following conditions adequately protect the rights of participants and beneficiaries of affected plans and IRAs with respect to the transactions that would be covered by this temporary exemption, if granted. 31. Several of these conditions highlight the Department’s expectation that the affected Northern QPAMs were not involved in the misconduct by NTFS that is the subject of the PO 00000 Frm 00015 Fmt 4701 Sfmt 4703 70575 Conviction.35 For example, relief under this proposed exemption is only available to the extent: (1) Northern QPAMs, including their officers, directors, agents other than Northern, and employees, did not know of, have reason to know of, or participate in the criminal conduct of NTFS that is the subject of the Conviction (for purposes of this requirement, ‘‘participated in’’ includes the knowing or tacit approval of the misconduct underlying the Conviction); (2) any failure of those QPAMs to satisfy Section I(g) of PTE 84–14 arose solely from the Conviction; and (3) the Northern QPAMs (including their officers, directors, agents other than Northern, and employees of such Northern QPAMs) did not receive direct compensation, or knowingly receive indirect compensation, in connection with the criminal conduct that is the subject of the Conviction. 32. The Department expects the Northern QPAMs to rigorously ensure that the individuals associated with the criminal conduct of NTFS will not be employed or knowingly engaged by such QPAMs. In this regard, the temporary exemption, if granted as proposed, mandates that the Northern QPAMs will not employ or knowingly engage any of the individuals that participated in criminal conduct that is the subject of the Conviction. For purposes of this requirement, ‘‘participated in’’ includes the knowing or tacit approval of the misconduct underlying the Conviction. Further, the Northern 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 or the Code and managed by such Northern QPAM, to enter into any transaction with NTFS or engage NTFS to provide any service to such investment fund, for a direct or indirect fee borne by such investment fund, regardless of whether such transaction or service may otherwise be within the scope of relief provided by an administrative or statutory exemption. 33. The Northern QPAMs must comply with each condition of PTE 84– 14, as amended, with the sole exceptions of the violation of Section I(g) of PTE 84–14 that is attributable to the Conviction. Further, any failure of the Northern QPAMs to satisfy Section I(g) of PTE 84–14 arose solely from the Conviction. 35 The Department notes that, at the time of publication of this proposed temporary exemption, NTFS has not been convicted. In the event that NTFS is not convicted, the Northern QPAMs may continue to rely on PTE 84–14 without additional exemptive relief. E:\FR\FM\12OCN3.SGM 12OCN3 mstockstill on DSK3G9T082PROD with NOTICES3 70576 Federal Register / Vol. 81, No. 197 / Wednesday, October 12, 2016 / Notices 34. No relief will be provided by the temporary exemption, if granted, to the extent that any entities holding assets that constitute the assets of an ERISAcovered plan or IRA were involved in the criminal conduct that is the subject of the Conviction. Further, no relief will be provided to the extent NTFS provides any discretionary asset management services to ERISA-covered plans or IRAs, or otherwise acts as a fiduciary with respect to ERISA-covered plan and IRA assets. 35. The Department believes that robust policies and training are warranted where, as here, alleged criminal misconduct has occurred within a corporate organization that is affiliated with one or more QPAMs managing plan investments in reliance on PTE 84–14. Therefore, this proposed temporary exemption, if granted, requires that each Northern QPAM must immediately develop, implement, maintain, and follow written policies (the Policies) requiring and reasonably designed to ensure that: The asset management decisions of the Northern QPAM are conducted independently of the management and business activities of Northern, including NTFS and any non-asset management activities of Northern; the Northern QPAM fully complies with ERISA’s fiduciary duties and with 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 Northern QPAM does not knowingly participate in any other person’s violation of ERISA or the Code with respect to ERISA-covered plans and IRAs; any filings or statements made by the Northern 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; the Northern 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; and the Northern QPAM complies with the terms of this temporary exemption, if granted. Any violation of, or failure to comply with these items is corrected promptly upon discovery, and any such violation or compliance failure not VerDate Sep<11>2014 17:46 Oct 11, 2016 Jkt 238001 promptly corrected is reported, upon discovering the failure to promptly correct, in writing, to appropriate corporate officers, the head of compliance and the General Counsel (or their functional equivalent) of the relevant Northern QPAM, and an appropriate fiduciary of any affected ERISA-covered plan or IRA where such fiduciary is independent of Northern. 36. The Department has also imposed a condition that requires each Northern QPAM to immediately develop and implement a program of training (the Training), for all relevant Northern QPAM asset/portfolio management, trading, legal, compliance, and internal audit personnel. The Training must 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), ethical conduct, the consequences of not complying with the conditions of this temporary exemption, if granted (including any loss of exemptive relief provided herein), and prompt reporting of wrongdoing. 37. This temporary exemption, if granted, requires Northern QPAMs to enter into certain contractual obligations in connection with the provision of services to their clients. It is the Department’s view that the condition for exemptive relief requiring these contractual obligations is essential to the Department’s ability to make its findings that the proposed temporary exemption is protective of the rights of the participants and beneficiaries of ERISA-covered and IRA plan clients of Northern QPAMs under section 408(a) of ERISA. In this regard, Section I(i) of the proposed temporary exemption provides that, as of the effective date of this temporary exemption, if granted, with respect to any arrangement, agreement, or contract between a Northern QPAM and an ERISA-covered plan or IRA for which a Northern QPAM provides asset management or other discretionary fiduciary services, each Northern QPAM must agree: 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 (and to promptly correct any inadvertent prohibited transactions), and to comply with the standards of prudence and loyalty set forth in section 404 of ERISA with respect to each such ERISA-covered plan and IRA; to indemnify and hold harmless the ERISA-covered plan or IRA for any damages resulting from a violation of applicable laws, a breach of contract, or any claim arising out of the PO 00000 Frm 00016 Fmt 4701 Sfmt 4703 failure of such Northern QPAM to qualify for the exemptive relief provided by PTE 84–14 as a result of a violation of Section I(g) of PTE 84–14 other than the Conviction; not to require (or otherwise cause) the ERISA-covered plan or IRA to waive, limit, or qualify the liability of the Northern QPAM for violating ERISA or the Code or engaging in prohibited transactions; 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 Northern 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 Northern; not to restrict the ability of such ERISAcovered plan or IRA to terminate or withdraw from its arrangement with the Northern QPAM (including any investment in a separately managed account or pooled fund subject to ERISA and managed by such 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 as a result of an actual lack of liquidity of the underlying assets, provided that such restrictions are applied consistently and in like manner to all such investors; and 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. Furthermore, any contract, agreement or arrangement between a Northern QPAM and its ERISA-covered plan or IRA client must not contain exculpatory provisions disclaiming or otherwise limiting liability of the Northern QPAM for a violation of such agreement’s terms. 38. Within six (6) months of the date of publication of a notice of temporary exemption in the Federal Register, if granted, each Northern QPAM will: Provide a notice of its obligations under Section I(i) to each ERISA-covered plan and IRA for which the Northern QPAM E:\FR\FM\12OCN3.SGM 12OCN3 Federal Register / Vol. 81, No. 197 / Wednesday, October 12, 2016 / Notices provides asset management or other discretionary fiduciary services; and Separately warrant in writing to each such ERISA-covered plan and IRA its obligations under subparagraph (1) of Section I(i). 39. Each Northern QPAM must maintain records necessary to demonstrate that the conditions of this temporary exemption, if granted, have been met for six (6) years following the date of any transaction for which such Northern QPAM relies upon the relief in the temporary exemption. 40. Furthermore, the proposed temporary exemption mandates that, during the effective period of this temporary exemption, if granted, neither NTFS nor any affiliate enters into a Deferred Prosecution Agreement (a DPA) or a Non-Prosecution Agreement (an NPA) with the Department of Justice, in connection with conduct described in section I(g) of PTE 84–14 or section 411 of ERISA. The Applicant represents that, to the best of its knowledge, Northern has not, within the past 13 years, been convicted of any crime described in section 411 of ERISA, nor has it been under investigation for any such crime. Furthermore, the Applicant represents that Northern currently does not have a reasonable basis to believe that there are any pending criminal investigations involving Northern or any of its affiliated companies that would cause a reasonable plan or IRA customer not to hire or retain the institution as a QPAM. Summary 41. Given the revised and new conditions described above, the Department has tentatively determined that the relief sought by the Applicants satisfies the statutory requirements for an exemption under section 408(a) of ERISA. mstockstill on DSK3G9T082PROD with NOTICES3 Notice to Interested Persons Written comments and requests for a public hearing on the proposed temporary exemption should be submitted to the Department within seven (7) days from the date of publication of this Federal Register Notice. Given the short comment period, the Department will consider comments received after such date, in connection with its consideration of more permanent relief. Warning: Do not include any personally identifiable information (such as name, address, or other contact information) or confidential business information that you do not want publicly disclosed. All comments may be posted on the Internet and can be VerDate Sep<11>2014 17:46 Oct 11, 2016 Jkt 238001 retrieved by most Internet search engines. Ms. Anna Mpras Vaughan of the Department, telephone (202) 693–8565. (This is not a toll-free number.) FOR FURTHER INFORMATION CONTACT: Proposed Extension of PTE 2015–15 Involving Deutsche Bank AG (Deutsche Bank), Located in Frankfurt, Germany [Exemption Application No. D–11879] Proposed Exemption The Department is considering granting an exemption under the authority of section 408(a) of the Employee Retirement Income Security Act of 1974, as amended (ERISA or the Act) and section 4975(c)(2) of the Internal Revenue Code of 1986, as amended (the Code) and in accordance with the procedures set forth in 29 CFR part 2570, subpart B (76 FR 66637, 66644, October 27, 2011).36 Section I: Covered Transactions If the Proposed Extension is granted, certain asset managers with specified relationships to Deutsche Bank (hereinafter, the DB QPAMs, as further defined in Section II(b)) shall not be precluded from relying on the exemptive relief provided by Prohibited Transaction Exemption (PTE) 84–14,37 notwithstanding a judgment of conviction against Deutsche Securities Korea Co., a South Korean affiliate of Deutsche Bank (hereinafter, DSK, as further defined in Section II(c)), entered on January 25, 2016 (the Korean Conviction, as further defined in Section II(a)),38 provided that the following conditions are satisfied: (a) The DB QPAMs (including their officers, directors, agents other than Deutsche Bank, and employees of such DB QPAMs) did not know of, have reason to know of, or participate in the criminal conduct of DSK that is the subject of the Korean Conviction; (b) Any failure of the DB QPAMs to satisfy Section I(g) of PTE 84–14 arose solely from the Korean Conviction; 36 For purposes of this proposed exemption, references to the provisions of Title I of the Act, unless otherwise specified, refer also to the corresponding provisions of the Code. 37 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). 38 Section I(g) of PTE 84–14 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. PO 00000 Frm 00017 Fmt 4701 Sfmt 4703 70577 (c) The DB QPAMs (including their officers, directors, agents other than Deutsche Bank, and employees of such DB QPAMs) did not receive direct compensation, or knowingly receive indirect compensation, in connection with the criminal conduct that is the subject of the Conviction; (d) A DB 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 DB QPAM to enter into any transaction with DSK or engage DSK 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; (e)(1) Each DB QPAM maintains and follows written policies (the Policies) requiring and reasonably designed to ensure that: (i) The asset management decisions of the DB QPAM are conducted independently of Deutsche Bank’s management and business activities; (ii) the DB 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 DB 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 DB 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 ERISAcovered plans or IRAs are materially accurate and complete, to the best of such DB QPAM’s knowledge at that time; (v) the DB 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 DB QPAM complies with the terms of this exemption, if granted; 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 E:\FR\FM\12OCN3.SGM 12OCN3 mstockstill on DSK3G9T082PROD with NOTICES3 70578 Federal Register / Vol. 81, No. 197 / Wednesday, October 12, 2016 / Notices of Compliance and the General Counsel of the relevant DB QPAM (or their functional equivalent), the independent auditor responsible for reviewing compliance with the Policies, and an appropriate fiduciary of any affected ERISA-covered plan or IRA that is independent of Deutsche Bank; however, with respect to any ERISAcovered plan or IRA sponsored by an ‘‘affiliate’’ (as defined in Section VI(d) of PTE 84–14) of Deutsche Bank or beneficially owned by an employee of Deutsche Bank or its affiliates, such fiduciary does not need to be independent of Deutsche Bank. DB 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 DB QPAM maintains and follows a program of training (the Training), conducted during the effective period of this exemption, if granted, for relevant DB QPAM asset management, legal, compliance, and internal audit personnel; the Training must 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 Proposed Extension, (including the loss of the exemptive relief provided therein), and prompt reporting of wrongdoing; (f)(1) Each DB QPAM submits to an audit conducted by an independent auditor, who has been prudently selected and who has appropriate technical training and proficiency with ERISA and the Code to evaluate the adequacy of, and compliance with, the Policies and Training described herein; the audit requirement must be incorporated in the Policies. The audit must cover the period of time during which this Proposed Extension, if granted, is effective, and must be completed no later than three (3) 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, and as permitted by law, each DB QPAM and, if applicable, Deutsche Bank, will grant the auditor unconditional access to its business, VerDate Sep<11>2014 17:46 Oct 11, 2016 Jkt 238001 including, but not limited to: Its computer systems, business records, transactional data, workplace locations, training materials, and personnel; (3) The auditor’s engagement must specifically require the auditor to determine whether each DB QPAM has developed, implemented, maintained, and followed Policies in accordance with the conditions of this Proposed Extension, if granted, and developed and implemented the Training, as required herein; (4) The auditor’s engagement shall specifically require the auditor to test each DB QPAM’s operational compliance with the Policies and Training. In this regard, the auditor must test a sample of the QPAM’s transactions involving ERIXA-covered plans and IRAs sufficient in size and nature to afford the auditor a reasonable basis to determine the operational compliance with the Policies and Training; (5) On or before the end of the period described in Section I(f)(1) for completing the audit, the auditor must issue a written report (the Audit Report) to Deutsche Bank and the DB QPAM to which the audit applies that describes the procedures performed by the auditor during the course of its examination. The Audit Report must 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 DB QPAM’s noncompliance with the written Policies and Training described in paragraph (e) 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 DB QPAM must be promptly addressed by such DB QPAM, and any actions taken by such DB QPAM to address such recommendations must be included in an addendum to the Audit Report. Any determinations by the auditor that the respective DB QPAM has 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 DB QPAM has complied with the requirements under this subsection must be based on evidence that demonstrates the DB QPAM has actually maintained and followed the Policies and Training required by this Proposed Extension, if granted, and not solely on PO 00000 Frm 00018 Fmt 4701 Sfmt 4703 a lack of evidence that the DB QPAM has violated ERISA; (6) The auditor shall notify the respective DB 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 DB QPAM to which the Audit Report applies certifies in writing, under penalty of perjury, that the officer has reviewed the Audit Report and this Proposed Extension, if granted; addressed, corrected, or remedied 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 Proposed Extension and with the applicable provisions of ERISA and the Code; (8) An executive officer of Deutsche Bank reviews the Audit Report for each DB QPAM and certifies in writing, under penalty of perjury, that such officer has reviewed each Audit Report; (9) Each DB 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 DB 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 DB QPAM; (10) Each DB QPAM and the auditor will submit to OED (A) any engagement agreement(s) entered into pursuant to the engagement of the auditor under this Proposed Extension, 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 Proposed Extension, no later than three (3) months after the date of the Korean 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 DB QPAM, and an explanation of any corrective or remedial actions taken by the applicable DB QPAM; and E:\FR\FM\12OCN3.SGM 12OCN3 mstockstill on DSK3G9T082PROD with NOTICES3 Federal Register / Vol. 81, No. 197 / Wednesday, October 12, 2016 / Notices (12) Deutsche Bank 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 Deutsche Bank demonstrates to the Department’s satisfaction that such new auditor is independent of Deutsche Bank, experienced in the matters that are the subject of the Proposed Extension, and capable of making the determinations required of this Proposed Extension. Notwithstanding the above, this audit requirement will be deemed met to the extent the Department issues more permanent relief that expressly revises this paragraph (f), and the terms of such new audit requirement have been met; (g) With respect to each ERISAcovered plan or IRA for which a DB QPAM provides asset management or other discretionary fiduciary services, each DB 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 DB 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 ERISAcovered plan or beneficial owner of such IRA) to indemnify the DB 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 Deutsche Bank; (4) not to restrict the ability of such ERISA-covered plan or IRA to terminate or withdraw from its arrangement with the DB 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 VerDate Sep<11>2014 17:46 Oct 11, 2016 Jkt 238001 applied consistently and in like manner to all such investors. Within two (2) months of the date of publication of a notice of exemption in the Federal Register, if granted, each DB QPAM will provide a notice to such effect to each ERISA-covered plan or IRA for which a DB QPAM provides asset management or other discretionary fiduciary services, unless such notice was previously provided consistent with PTE 2015–15; (h) Each DB QPAM will maintain records necessary to demonstrate that the conditions of this Proposed Extension, if granted, have been met, for six (6) years following the date of any transaction for which such DB QPAM relies upon the relief in the Proposed Extension; (i) The DB 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 Korean Conviction; (j) The DB QPAMs will not employ any of the individuals that engaged in the spot/futures-linked market manipulation activities that led to the Korean Conviction; (k) Deutsche Bank disgorged all of its profits generated by the spot/futureslinked market manipulation activities of DSK personnel that led to the Korean Conviction; (l) Deutsche Bank imposes internal procedures, controls, and protocols on DSK designed to reduce the likelihood of any recurrence of the conduct that is the subject of the Korean Conviction, to the extent permitted by local law; (m) DSK has not, and will not, provide fiduciary or QPAM services to ERISA-covered Plans or IRAs, and will not otherwise exercise discretionary control over plan assets; (n) No DB QPAM is a subsidiary of DSK, and DSK is not a subsidiary of any DB QPAM; (o) The criminal conduct of DSK that is the subject of the Korean Conviction did not directly or indirectly involve the assets of any plan subject to Part 4 of Title I of ERISA or section 4975 of the Code; and (p) A DB QPAM will not fail to meet the terms of this Proposed Extension solely because a different DB QPAM fails to satisfy the conditions for relief under this Proposed Extension described in Sections I(d), (e), (f), (g), (h), (i) and (j). Section II: Definitions (a) The term ‘‘Korean Conviction’’ means the judgment of conviction against DSK entered on January 25, 2016, in Seoul Central District Court, relating to charges filed against DSK under Articles 176, 443, and 448 of PO 00000 Frm 00019 Fmt 4701 Sfmt 4703 70579 South Korea’s Financial Investment Services and Capital Markets Act for spot/futures-linked market price manipulation; (b) The term ‘‘DB QPAM’’ means a ‘‘qualified professional asset manager’’ (as defined in section VI(a) 39 of PTE 84– 14) that relies on the relief provided by PTE 84–14 and with respect to which DSK is a current or future ‘‘affiliate’’ (as defined in section VI(d) of PTE 84–14). For purposes of this Proposed Extension, if granted, Deutsche Bank Securities, Inc. (DBSI), including all entities over which it exercises control; and Deutsche Bank AG, including all of its branches, are excluded from the definition of a DB QPAM; and (c) The term ‘‘DSK’’ means Deutsche Securities Korea Co., a South Korean ‘‘affiliate’’ of Deutsche Bank (as the term ‘‘affiliate’’ is defined in section VI(c) of PTE 84–14). Effective Date: If granted, this Proposed Extension will be effective for the period beginning October 24, 2016 and ending on the earlier of: April 23, 2017 or the effective date of a final agency action made by the Department in connection with Exemption Application No. D–11856.40 Summary of Facts and Representations Background 1. On October 11, 2011, Deutsche Bank AG (Deutsche Bank) submitted Exemption Application No. D–11696 (the First Request), to allow certain asset managers with specified relationships to Deutsche Bank (the DB QPAMs) to continue to utilize the relief set forth in Prohibited Transaction Exemption (PTE) 84–14,41 notwithstanding the failure of those entities to meet the requirement set forth in Section I(g) of PTE 84–14 as a result of the pending conviction in Seoul Central District Court (the Korean Court), against Deutsche Securities Korea Co. (DSK) for spot/futures-linked market price manipulation (the Korean Conviction).42 While the Department 39 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. 40 In this regard, as noted below, the Applicant has requested substantially similar relief to the relief described herein, but on a more permanent basis. 41 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). 42 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 E:\FR\FM\12OCN3.SGM Continued 12OCN3 70580 Federal Register / Vol. 81, No. 197 / Wednesday, October 12, 2016 / Notices mstockstill on DSK3G9T082PROD with NOTICES3 was considering the First Request, Deutsche Investment Management Americas Inc. (DIMA) and the current and future asset management affiliates of Deutsche Bank, submitted Exemption Application No. D–11856 (the Second Request) to allow the DB QPAMs to continue to rely on PTE 84–14 for a period of ten years, notwithstanding both the Korean Conviction and the anticipated criminal conviction of a Deutsche Bank affiliate, DB Group Services UK Limited, for one count of wire fraud in connection with its alleged role in manipulating LIBOR. 2. In a letter dated July 16, 2015, the Department informed DIMA and Deutsche Bank that it was tentatively denying the Second Request, upon tentatively determining that the requested exemption was not in the interest of affected plans and IRAs, and not protective of those plans and IRAs. The Department held a Tentative Denial conference with representatives of Deutsche Bank on November 9, 2015 and has since requested and received additional information in respect of the Second Request. 3. Although the Department tentatively denied the Second Request, the First Request, which requested an exemption from Section I(g) of PTE 84– 14 in connection with only the Korean Conviction, was still pending with the Department. When the Korean Conviction appeared imminent, the Department published a proposed temporary exemption (the First Proposal) in the Federal Register at 80 FR 51314. As noted in the preamble to the proposed exemption, affected plans and IRAs may have incurred substantial harm absent such relief; DB QPAMs were not aware of, and did not participate in, the conduct that gave rise to the Korean Conviction; and the conditions set forth in the exemption represented significant enhancements for plans and IRAs with assets managed by certain DB QPAMs. The Department finalized the First Proposal on September 4, 2015, with an effective period of nine months following the Korean Conviction (PTE 2015–15, 80 FR 53574).43 The Korean Conviction was entered by the Korean Court on January 25, 2016. As such, PTE 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. 43 For a more complete statement of the facts and representations concerning Deutsche Bank, DSK, and the circumstances surrounding the Korean Conviction, refer to the First Proposal. VerDate Sep<11>2014 17:46 Oct 11, 2016 Jkt 238001 2015–15 is effective from January 25, 2016 until October 24, 2016. 4. The Department now proposes to temporarily extend the relief (the Proposed Extension) provided in PTE 2015–15 from October 24, 2016 until the earlier of April 23, 2017, or the effective date of an exemption that is granted in respect of Exemption Application No. D–11856, if any. The Proposed Extension, if granted, will enable the Department to accommodate a more complete review of the voluminous records submitted in connection with the Second Request and consider whether or not a longer term exemption is appropriate. Statutory Findings 5. The Department is proposing this extension based on the same findings the Department made regarding PTE 2015–15. In this regard, the Department has tentatively determined that limited exemptive relief is in the interest of ERISA-covered plans and IRAs managed by the DB QPAMs. The Department is concerned that, absent such relief, plans and IRAs would incur costs in: Searching for new managers; issuing requests for proposals; conducting due diligence (including meetings with potential managers and credit analysts); seeking investment committee approvals and negotiating; and/or drafting new investment management agreements, investment guidelines and related trading documentation with broker-dealers and other counterparties. Deutsche Bank has suggested that the selection of new managers could potentially take several months or longer, resulting in a number of collateral costs including the opportunity costs of missed investments, lower returns from investing in cash pending long term reinvestment, fewer trading counterparties and more limited or costly temporary investment alternatives. The Department is also taking into consideration Deutsche Bank’s prior representations that: ERISA-covered plans and IRAs would incur direct transaction costs in liquidating and reinvesting their portfolios, ranging from 2.5 to 25 basis points (excluding core real estate), resulting in approximately $5 to $7 million in expenses; and liquidating certain direct real estate portfolios may result in portfolio discounts of 10–20% of gross asset value, along with 30 to 100 basis points in direct transaction costs, resulting in an estimated total cost to plan investors of between $281 million and $723 million, depending on the liquidation period. PO 00000 Frm 00020 Fmt 4701 Sfmt 4703 6. The Department has tentatively determined that this Proposed Extension is sufficient to protect affected plans and IRAs in light of the conditions herein and the temporary nature of this extension, if granted. The conditions described herein are essentially the same conditions set forth in PTE 2015–15. For example, each DB QPAM must continue to maintain and follow the robust written policies (the Policies) and training requirements (the Training) developed under PTE 2015– 15. The Policies, which are described in more detail in the operative language of the Proposed Extension below, are generally designed to, among other things: Ensure the independence of the DB QPAMs from Deutsche Bank and its other affiliates such as DSK; require the strict legal compliance of the DB QPAMs with ERISA, the Code and the prohibited transaction rules; ensure truthfulness and transparency with respect to statements made by DB QPAMs to regulators; and ensure compliance with the terms of this exemption, if granted. The Training, which is also described in more detail in the operative language of the Proposed Extension below, is designed to cover the Policies, ERISA and Code compliance, ethical conduct, the consequences for not complying with the conditions of this Proposed Extension, and prompt reporting of wrongdoing. In order to verify the DB QPAMs’ compliance with the Policies and Training requirements of the Proposed Extension, and the conditions for relief, each DB QPAM must submit to an audit conducted by an independent auditor, prudently selected, who has appropriate technical training and proficiency with ERISA to evaluate the adequacy of, and compliance with, the Policies and Training, and the conditions for relief described herein. Furthermore, 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 DB QPAM and, if applicable, Deutsche Bank, must 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 auditor’s engagement shall specifically require the auditor to determine whether each DB QPAM has developed, implemented, maintained, and followed Policies in accordance with the conditions of this Proposed Extension, if granted, and developed and implemented the Training, as required herein, and it shall specifically require E:\FR\FM\12OCN3.SGM 12OCN3 mstockstill on DSK3G9T082PROD with NOTICES3 Federal Register / Vol. 81, No. 197 / Wednesday, October 12, 2016 / Notices the auditor to test each DB QPAM’s operational compliance with the Policies and Training. Furthermore, the auditor must issue a written report (the Audit Report) to Deutsche Bank and the DB QPAM to which the audit applies that describes the procedures performed by the auditor during the course of its examination. The Audit Report must 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 DB QPAM’s noncompliance with the written Policies and Training described above. Furthermore, any determination 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 DB QPAM must be promptly addressed by such DB QPAM, and any actions taken by such DB QPAM to address such recommendations must be included in an addendum to the Audit Report. The auditor is required to notify the respective DB QPAM of any instances of noncompliance identified by the auditor. The General Counsel or one of the three most senior executive officers of the DB QPAM to which the Audit Report applies must certify in writing, under penalty of perjury, that the officer has reviewed the Audit Report and, if granted, this Proposed Extension; addressed, corrected, or remedied 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 the Proposed Extension and with the applicable provisions of ERISA and the Code. Moreover, an executive officer of Deutsche Bank must review the Audit Report for each DB QPAM and certify in writing, under penalty of perjury, that such officer has reviewed each Audit Report. The audit must: Span the period of time covered by this Proposed Extension, if granted; be completed within three months days from the end of the period to which it relates; and be submitted to the Department within 30 days from date the audit is completed. These requirements may be enhanced or changed if subsequent exemptive relief is granted. The DB QPAMs must give the Department copies of the auditor’s workpapers upon request. In addition, Deutsche Bank must notify the Department at least 30 days prior to any VerDate Sep<11>2014 17:46 Oct 11, 2016 Jkt 238001 substitution of the auditor, and must demonstrate to the Department’s satisfaction that the replacement auditor is independent of Deutsche Bank, experienced in the matters that are the subject of the Proposed Extension, and capable of making the determinations required of this Proposed Extension. Under the terms of the Proposed Extension, if granted, the DB QPAMs must agree to certain terms and undertakings with each ERISA-covered plan or IRA for which a DB QPAM provides asset management or other discretionary fiduciary services, including, generally: (1) Compliance with ERISA and the Code and avoidance of non-exempt prohibited transactions; (2) not to waive, limit, or qualify certain liabilities of the DB QPAM; (3) not to require indemnification of the DB QPAM for violating ERISA or engaging in prohibited transactions; and (4) with minor exceptions, not to restrict the ability of ERISA-covered plan or IRA clients to terminate or withdraw from their arrangement with the DB QPAM or, to impose any fees, penalties, or charges for such termination or withdrawal. Each DB QPAM will provide a notice describing the abovedescribed terms and undertakings to each such ERISA-covered plan or IRA within two (2) months of the date of publication of a notice of extension in the Federal Register, if granted, unless such notice was previously provided consistent with PTE 2015–15. Under the terms of this Proposed Extension, each DB QPAM must: Maintain records necessary to demonstrate that the conditions herein have been met, for six (6) years following the date of any transaction for which such DB QPAM relies upon the relief in the Proposed Extension, if granted; 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 Korean Conviction; ensure that none of the individuals that engaged in the conduct that led to the Korean Conviction are employed by the DB QPAM; and provide a notice of the Proposed Extension, and if granted, a notice of final extension of PTE 2015–15, along with a separate summary (which has been submitted to the Department) describing the facts that led to the Korean Conviction, and a prominently displayed statement that the Korean Conviction results in a failure to meet a condition in PTE 84–14 to each sponsor of an ERISA-covered plan and each beneficial owner of an IRA invested in an investment fund managed by a DB QPAM, or the sponsor of an investment fund in any case where a DB QPAM acts PO 00000 Frm 00021 Fmt 4701 Sfmt 4703 70581 only as a sub-advisor to the investment fund. Lastly, regarding the DB QPAMs, relief under this Proposed Extension, if granted, is only available to the extent the QPAMs covered by this Proposed Extension, as defined in Section II of this Extension, including their officers, directors, agents other than Deutsche Bank, and employees, did not know of, have reason to know of, or participate in the criminal conduct of DSK that is the subject of the Korean Conviction; any failure of those QPAMs to satisfy Section I(g) of PTE 84–14 arose solely from the Korean Conviction; such QPAMs did not directly receive compensation, or knowingly receive indirect compensation, in connection with, the criminal conduct that is the subject of the Korean Conviction; and none of those QPAMs will 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 DB QPAM to enter into any transaction with DSK, or engage DSK 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. Regarding conditions herein directed at Deutsche Bank, prior to engaging in a transaction covered by this Proposed Extension, if granted, Deutsche Bank must have previously disgorged all of its profits generated from exercising derivative positions and put options in connection with the activity associated with the Korean Conviction. Deutsche Bank must have also previously imposed internal procedures, controls, and protocols on DSK designed to reduce the likelihood of any recurrence of the conduct that is the subject of the Korean Conviction, to the extent permitted by local law. Regarding conditions herein aimed at DSK, DSK may not provide fiduciary services to ERISA-covered Plans or IRAs, or otherwise exercise discretionary control over plan assets. Further, none of the DB QPAMs may be subsidiaries of DSK, and DSK may not be a subsidiary of any of the DB QPAMs. Finally, the criminal conduct of DSK that is the subject of the Korean Conviction must not have directly or indirectly involved the assets of any plan subject to Part 4 of Title I of ERISA or section 4975 of the Code. The Proposed Extension, if granted, will not apply to Deutsche Bank E:\FR\FM\12OCN3.SGM 12OCN3 70582 Federal Register / Vol. 81, No. 197 / Wednesday, October 12, 2016 / Notices mstockstill on DSK3G9T082PROD with NOTICES3 Securities, Inc. (DBSI).44 Section I(a) of PTE 2015–15, as well as this Proposed Extension, requires that ‘‘DB QPAMs (including their officers, directors, agents other than Deutsche Bank, and employees of such DB QPAMs) did not know of, have reason to know of, or participate in the criminal conduct of DSK that is the subject of the Conviction.’’ In a letter to the Department dated July 15, 2016, Deutsche Bank raised the possibility that an individual,45 while employed at DBSI, may have known or had reason to know of the criminal conduct of DSK that is the subject of the Korean Conviction. In a letter to the Department dated August 19, 2016, Deutsche Bank further clarified that ‘‘there is no evidence that anyone at DBSI other than Mr. Ripley knew in advance of the trades conducted by the Absolute Strategy Group on November 11, 2010.’’ Deutsche Bank states that it had previously interpreted Section I(a) of PTE 2015–15 as requiring only that ‘‘any current director, officer or employee did not know of, have reason to know of, or participate in the conduct.’’ The Department notes that Deutsche Bank did not raise any interpretive questions regarding Section I(a) of PTE 2015–15, or express any concerns regarding DBSI’s possible noncompliance, during the comment period for PTE 2015–15. Nor did Deutsche Bank seek a technical correction or other remedy to address such concerns between the time that PTE 2015–15 was granted and the date of the Korean Conviction. The Department notes that a period of approximately nine months passed before Deutsche Bank raised an interpretive question regarding Section I(a) of PTE 2015–15. Accordingly, the Department is excluding DBSI from the relief described in this Proposed Extension. The Proposed Extension, if granted, will also not apply with respect to Deutsche Bank AG (the parent entity) or any of its branches. The Applicant represents that neither Deutsche Bank AG nor its branches have relied on the relief provided by PTE 84–14 since the date of the Korean Conviction. 7. The Department has tentatively determined that the Proposed Extension 44 The Applicant represents that DBSI has not relied on the relief provided by PTE 84–14 since the date of the Korean Conviction. 45 The Applicant identifies the individual as Mr. John Ripley, a senior global manager in DBSI who was based in the United States and who was a functional supervisor over the employees of DSK that were prosecuted for market manipulation. Furthermore, the Applicant states that Mr. Ripley was terminated by DBSI for ‘‘loss of confidence’’ in that he could have exercised more care and been more proactive in reviewing the trades at issue. VerDate Sep<11>2014 17:46 Oct 11, 2016 Jkt 238001 is administratively feasible. In this regard, this Proposed Extension, if granted, would not require the Department’s oversight because DSK does not provide any fiduciary or QPAM services to ERISA-covered plans and IRAs and that no ERISA or IRA assets were involved in the Korean Conviction. Furthermore, compliance with the terms of the Proposed Extension and of PTE 2015–15 will be validated through an audit performed by a qualified, independent auditor. 8. The proposed exemption, if granted, would provide relief from certain of the restrictions set forth in Section 406 and 407 of ERISA. Such a granted exemption would not provide relief from any other violation of law, including any criminal conviction not expressly described herein. Pursuant to the terms of this proposed exemption, if granted, any criminal conviction not expressly described herein, but otherwise described in Section I(g) of PTE 84–14 and attributable to the applicant for purposes of PTE 84–14, would result in the applicant’s loss of this exemption, if granted. Interested persons are directed to the First Proposal, the Facts and Representations of which are incorporated herein, for a more detailed description of the Department’s views regarding the scope of relief and the adequacy of the conditions contained herein. Effective Dates 9. This Proposed Extension, if granted, will be effective from October 24, 2016 until the earlier of April 23, 2017 or the effective date of a final agency action made by the Department in connection with Exemption Application No. D–11856. Fiduciaries of ERISA-covered plans and IRAs with assets managed by a DB QPAM should be aware that, if this Proposed Extension is not granted, DB QPAMs may only rely on the relief provided in PTE 84–14 until October 23, 2016. If the Department grants this Proposed Extension, but makes a final decision not to propose the Second Request, the DB QPAMs will be unable to rely on the relief set forth in PTE 84–14, as of April 24, 2017. ERISA-covered plan and IRA fiduciaries should take note that, as described above, the conditions for PTE 2015–15 and this Proposed Extension require DB QPAMs to agree not to restrict the ability of each ERISAcovered plan or IRA client to terminate or withdraw from its arrangement with the DB QPAM, with certain limited exceptions. PO 00000 Frm 00022 Fmt 4701 Sfmt 4703 Notice to Interested Persons Written comments and requests for a public hearing on the Proposed Extension should be submitted to the Department within seven (7) days from the date of publication of this Federal Register Notice. Given the short comment period, the Department will consider comments received after such date, in connection with its consideration of more permanent relief. Warning: Do not include any personally identifiable information (such as name, address, or other contact information) or confidential business information that you do not want publicly disclosed. All comments may be posted on the Internet and can be retrieved by most Internet search engines. FOR FURTHER INFORMATION CONTACT: Scott Ness of the Department, telephone (202) 693–8561. (This is not a toll-free number.) General Information The attention of interested persons is directed to the following: (1) The fact that a transaction is the subject of an exemption under section 408(a) of the Act and/or section 4975(c)(2) of the Code does not relieve a fiduciary or other party in interest or disqualified person from certain other provisions of the Act and/or the Code, including any prohibited transaction provisions to which the exemption does not apply and the general fiduciary responsibility provisions of section 404 of the Act, which, among other things, require a fiduciary to discharge his duties respecting the plan solely in the interest of the participants and beneficiaries of the plan and in a prudent fashion in accordance with section 404(a)(1)(b) of the Act; nor does it affect the requirement of section 401(a) of the Code that the plan must operate for the exclusive benefit of the employees of the employer maintaining the plan and their beneficiaries; (2) Before an exemption may be granted under section 408(a) of the Act and/or section 4975(c)(2) of the Code, the Department must find that the exemption is administratively feasible, in the interests of the plan and of its participants and beneficiaries, and protective of the rights of participants and beneficiaries of the plan; (3) The proposed exemptions, if granted, will be supplemental to, and not in derogation of, any other provisions of the Act and/or the Code, including statutory or administrative exemptions and transitional rules. Furthermore, the fact that a transaction is subject to an administrative or E:\FR\FM\12OCN3.SGM 12OCN3 Federal Register / Vol. 81, No. 197 / Wednesday, October 12, 2016 / Notices statutory exemption is not dispositive of whether the transaction is in fact a prohibited transaction; and (4) The proposed exemptions, if granted, will be subject to the express condition that the material facts and representations contained in each application are true and complete, and that each application accurately describes all material terms of the transaction which is the subject of the exemption. Signed at Washington, DC, this 5th day of October, 2016. Lyssa E. Hall, Director, Office of Exemption Determinations, Employee Benefits Security Administration, U.S. Department of Labor. [FR Doc. 2016–24595 Filed 10–11–16; 8:45 am] mstockstill on DSK3G9T082PROD with NOTICES3 BILLING CODE 4510–29–P VerDate Sep<11>2014 17:46 Oct 11, 2016 Jkt 238001 PO 00000 Frm 00023 Fmt 4701 Sfmt 9990 70583 E:\FR\FM\12OCN3.SGM 12OCN3

Agencies

[Federal Register Volume 81, Number 197 (Wednesday, October 12, 2016)]
[Notices]
[Pages 70562-70583]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-24595]



[[Page 70561]]

Vol. 81

Wednesday,

No. 197

October 12, 2016

Part III





Department of Labor





-----------------------------------------------------------------------





Employee Benefits Security Administration





-----------------------------------------------------------------------





Proposed Exemptions from Certain Prohibited Transaction Restrictions; 
Notice

Federal Register / Vol. 81 , No. 197 / Wednesday, October 12, 2016 / 
Notices

[[Page 70562]]


-----------------------------------------------------------------------

DEPARTMENT OF LABOR

Employee Benefits Security Administration


Proposed Exemptions From Certain Prohibited Transaction 
Restrictions

AGENCY: Employee Benefits Security Administration, Labor.

ACTION: Notice of proposed exemptions.

-----------------------------------------------------------------------

SUMMARY: This document contains notices of pendency before the 
Department of Labor (the Department) of proposed exemptions from 
certain of the prohibited transaction restrictions of the Employee 
Retirement Income Security Act of 1974 (ERISA or the Act) and/or the 
Internal Revenue Code of 1986 (the Code). This notice includes the 
following proposed exemptions: D-11868, Royal Bank of Canada (together 
with its current and future affiliates, RBC or the Applicant); D-11875, 
Northern Trust Corporation (together with its current and future 
affiliates, Northern or the Applicant; and D-11879, Proposed Extension 
of PTE 2015-15 involving Deutsche Bank AG (Deutsche Bank).

DATES: All interested persons are invited to submit written comments or 
requests for a hearing on the pending exemptions, unless otherwise 
stated in the Notice of Proposed Exemption, within 45 days from the 
date of publication of this Federal Register Notice.

ADDRESSES: Comments and requests for a hearing should state: (1) The 
name, address, and telephone number of the person making the comment or 
request, and (2) the nature of the person's interest in the exemption 
and the manner in which the person would be adversely affected by the 
exemption. A request for a hearing must also state the issues to be 
addressed and include a general description of the evidence to be 
presented at the hearing.
    All written comments and requests for a hearing (at least three 
copies) should be sent to the Employee Benefits Security Administration 
(EBSA), Office of Exemption Determinations, U.S. Department of Labor, 
200 Constitution Avenue NW., Suite 400, Washington, DC 20210. 
Attention: Application No. __, stated in each Notice of Proposed 
Exemption. Interested persons are also invited to submit comments and/
or hearing requests to EBSA via email or FAX. Any such comments or 
requests should be sent either by email to: moffitt.betty@dol.gov, or 
by FAX to (202) 693-8474 by the end of the scheduled comment period. 
The applications for exemption and the comments received will be 
available for public inspection in the Public Documents Room of the 
Employee Benefits Security Administration, U.S. Department of Labor, 
Room N-1515, 200 Constitution Avenue NW., Washington, DC 20210.
    Warning: All comments will be made available to the public. Do not 
include any personally identifiable information (such as Social 
Security number, name, address, or other contact information) or 
confidential business information that you do not want publicly 
disclosed. All comments may be posted on the Internet and can be 
retrieved by most Internet search engines.

SUPPLEMENTARY INFORMATION:

Notice to Interested Persons

    Notice of the proposed exemptions will be provided to all 
interested persons in the manner agreed upon by the applicant and the 
Department within 15 days of the date of publication in the Federal 
Register. Such notice shall include a copy of the notice of proposed 
exemption as published in the Federal Register and shall inform 
interested persons of their right to comment and to request a hearing 
(where appropriate).
    The proposed exemptions were requested in applications filed 
pursuant to section 408(a) of the Act and/or section 4975(c)(2) of the 
Code, and in accordance with procedures set forth in 29 CFR part 2570, 
subpart B (76 FR 66637, 66644, October 27, 2011).\1\ Effective December 
31, 1978, section 102 of Reorganization Plan No. 4 of 1978, 5 U.S.C. 
App. 1 (1996), transferred the authority of the Secretary of the 
Treasury to issue exemptions of the type requested to the Secretary of 
Labor. Therefore, these notices of proposed exemption are issued solely 
by the Department.
---------------------------------------------------------------------------

    \1\ The Department has considered exemption applications 
received prior to December 27, 2011 under the exemption procedures 
set forth in 29 CFR part 2570, subpart B (55 FR 32836, 32847, August 
10, 1990).
---------------------------------------------------------------------------

    The applications contain representations with regard to the 
proposed exemptions which are summarized below. Interested persons are 
referred to the applications on file with the Department for a complete 
statement of the facts and representations.

Royal Bank of Canada (Together With Its Current and Future Affiliates, 
RBC or the Applicant), Located in Toronto, Ontario, Canada

[Exemption Application No. D-11868]

Proposed Temporary Exemption

    The Department is considering granting a temporary exemption under 
the authority of section 408(a) of the Employee Retirement Income 
Security Act of 1974, as amended, (ERISA or the Act) and section 
4975(c)(2) of the Internal Revenue Code of 1986, as amended (the Code), 
and in accordance with the procedures set forth in 29 CFR part 2570, 
subpart B (76 FR 66637, 66644, October 27, 2011).\2\
---------------------------------------------------------------------------

    \2\ For purposes of this proposed temporary exemption, 
references to section 406 of Title I of the Act, unless otherwise 
specified, should be read to refer as well to the corresponding 
provisions of section 4975 of the Code.
---------------------------------------------------------------------------

Section I: Covered Transactions
    If the proposed temporary exemption is granted, certain entities 
with specified relationships to Royal Bank of Canada Trust Company 
(Bahamas) Limited (hereinafter, the RBC QPAMs, as further defined in 
Section II(b)) shall not be precluded from relying on the exemptive 
relief provided by Prohibited Transaction Exemption (PTE) 84-14,\3\ 
notwithstanding a judgment of conviction against Royal Bank of Canada 
Trust Company (Bahamas) Limited for aiding and abetting tax fraud, to 
be entered in France in the District Court of Paris (the Conviction, as 
further defined in Section II(a)),\4\ for a period of up to twelve 
months beginning on the date of the Conviction (the Conviction Date), 
provided that the following conditions are satisfied:
---------------------------------------------------------------------------

    \3\ 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).
    \4\ Section I(g) of PTE 84-14 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 
aiding and abetting tax evasion.
---------------------------------------------------------------------------

    (a) The RBC QPAMs (including their officers, directors, agents 
other than RBC, and employees of such RBC QPAMs) did not know of, have 
reason to know of, or participate in the criminal conduct of RBCTC 
Bahamas that is the subject of the Conviction (for purposes of this 
paragraph (a), ``participate in'' includes the knowing or tacit 
approval of the misconduct underlying the Conviction);
    (b) The RBC QPAMs (including their officers, directors, agents 
other than RBC, and employees of such RBC QPAMs) did not receive direct 
compensation, or knowingly receive indirect compensation, in connection 
with the criminal conduct that is the subject of the Conviction;

[[Page 70563]]

    (c) The RBC QPAMs will not employ or knowingly engage any of the 
individuals that participated in the criminal conduct that is the 
subject of the Conviction (for purposes of this paragraph (c), 
``participated in'' includes the knowing or tacit approval of the 
misconduct underlying the Conviction);
    (d) An RBC 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 or the Code and managed by such RBC QPAM, to enter 
into any transaction with RBCTC Bahamas or engage RBCTC Bahamas to 
provide any service to such investment fund, for a direct or indirect 
fee borne by such investment fund, regardless of whether such 
transaction or service may otherwise be within the scope of relief 
provided by an administrative or statutory exemption;
    (e) Any failure of the RBC QPAMs to satisfy Section I(g) of PTE 84-
14 arose solely from the Conviction;
    (f) No entities holding assets that constitute 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) were involved in the criminal conduct 
that is the subject of the Conviction;
    (g) RBCTC Bahamas has not provided nor will provide discretionary 
asset management services to ERISA-covered plans or IRAs, or otherwise 
will act as a fiduciary with respect to ERISA-covered plan and IRA 
assets;
    (h)(1) Each RBC QPAM must immediately develop, implement, maintain, 
and follow written policies (the Policies) requiring and reasonably 
designed to ensure that:
    (i) The asset management decisions of the RBC QPAM are conducted 
independently of the management and business activities of RBC, 
including RBCTC Bahamas;
    (ii) The RBC QPAM fully complies with ERISA's fiduciary duties and 
with 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 RBC 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 RBC 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 RBC 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 RBC QPAM complies with the terms of this temporary 
exemption, if granted; and
    (vii) Any violation of, or failure to comply with, an item in 
subparagraph (ii) through (vi), is corrected promptly upon discovery, 
and any such violation or compliance failure not promptly corrected is 
reported, upon discovering the failure to promptly correct, in writing, 
to appropriate corporate officers, the head of compliance and the 
General Counsel (or their functional equivalent) of the relevant RBC 
QPAM, and an appropriate fiduciary of any affected ERISA-covered plan 
or IRA where such fiduciary is independent of RBC; 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 RBC or beneficially owned 
by an employee of RBC or its affiliates, such fiduciary does not need 
to be independent of RBC. An RBC QPAM will not be treated as having 
failed to develop, implement, maintain, or follow the Policies, 
provided that it corrects any instance of noncompliance promptly when 
discovered or when it reasonably should have known of the noncompliance 
(whichever is earlier), and provided that it adheres to the reporting 
requirements set forth in this subparagraph (vii);
    (2) Each RBC QPAM must immediately develop and implement a program 
of training (the Training), conducted at least annually, for all 
relevant RBC QPAM asset/portfolio management, trading, legal, 
compliance, and internal audit personnel. The Training must 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), ethical conduct, the consequences 
for not complying with the conditions of this temporary exemption, if 
granted (including any loss of exemptive relief provided herein), and 
prompt reporting of wrongdoing;
    (i) Effective as of the effective date of this temporary exemption, 
if granted, with respect to any arrangement, agreement, or contract 
between an RBC QPAM and an ERISA-covered plan or IRA for which an RBC 
QPAM provides asset management or other discretionary fiduciary 
services, each RBC QPAM agrees:
    (1) To comply with ERISA and the Code, as applicable with respect 
to such ERISA-covered plan or IRA; to refrain from engaging in 
prohibited transactions that are not otherwise exempt (and to promptly 
correct any inadvertent prohibited transactions); and to comply with 
the standards of prudence and loyalty set forth in section 404 of ERISA 
with respect to each such ERISA-covered plan and IRA;
    (2) Not to require (or otherwise cause) the ERISA-covered plan or 
IRA to waive, limit, or qualify the liability of the RBC 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 RBC 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 RBC;
    (4) Not to restrict the ability of such ERISA-covered plan or IRA 
to terminate or withdraw from its arrangement with the RBC QPAM 
(including any investment in a separately managed account or pooled 
fund subject to ERISA and managed by such 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 as a result of an actual 
lack of liquidity of the underlying assets, provided that such 
restrictions are applied consistently and in like manner to all such 
investors;
    (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;

[[Page 70564]]

    (6) Not to include exculpatory provisions disclaiming or otherwise 
limiting liability of the RBC QPAM for a violation of such agreement's 
terms; and
    (7) To indemnify and hold harmless the ERISA-covered plan or IRA 
for any damages resulting from a violation of applicable laws, a breach 
of contract, or any claim arising out of the failure of such RBC QPAM 
to qualify for the exemptive relief provided by PTE 84-14 as a result 
of a violation of Section I(g) of PTE 84-14 other than the Conviction.
    Within six (6) months of the date of publication of a notice of 
temporary exemption in the Federal Register, if granted, each RBC QPAM 
will: Provide a notice of its obligations under this Section I(i) to 
each ERISA-covered plan and IRA for which an RBC QPAM provides asset 
management or other discretionary fiduciary services; and Separately 
warrant in writing to each such ERISA-covered plan and IRA its 
obligations under subparagraph (1) of this Section I(i);
    (j) The RBC QPAMs comply with each condition of PTE 84-14, as 
amended, with the sole exceptions of the violations of Section I(g) of 
PTE 84-14 that are attributable to the Conviction;
    (k) Each RBC QPAM will maintain records necessary to demonstrate 
that the conditions of this temporary exemption, if granted, have been 
met, for six (6) years following the date of any transaction for which 
such RBC QPAM relies upon the relief in the temporary exemption, if 
granted;
    (l) During the effective period of this temporary exemption, if 
granted, neither RBC nor any affiliate enters into a Deferred 
Prosecution Agreement (a DPA) or a Non-Prosecution Agreement (an NPA) 
with the U.S Department of Justice, in connection with conduct 
described in Section I(g) of PTE 84-14 or section 411 of ERISA; and
    (m) An RBC QPAM will not fail to meet the terms of this temporary 
exemption, if granted, solely because a different RBC QPAM fails to 
satisfy a condition for relief under this temporary exemption, if 
granted, described in Sections I(c), (d), (h), (i), (j), and (k).
Section II: Definitions
    (a) The term ``Conviction'' means the potential judgment of 
conviction against RBCTC Bahamas for aiding and abetting tax fraud to 
be entered in France in the District Court of Paris, French Special 
Prosecutor No. 1120392066, French Investigative Judge No. JIRSIF/11/12;
    (b) The term ``RBC QPAM'' means a ``qualified professional asset 
manager'' (as defined in section VI(a) \5\ of PTE 84-14) that relies on 
the relief provided by PTE 84-14 and with respect to which RBCTC 
Bahamas is a current or future ``affiliate'' (as defined in section 
VI(d) of PTE 84-14);
---------------------------------------------------------------------------

    \5\ 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.
---------------------------------------------------------------------------

    (c) The term ``RBCTC Bahamas'' means Royal Bank of Canada Trust 
Company (Bahamas) Limited, a Bahamian ``affiliate'' of RBC (as defined 
in section VI(c) of PTE 84-14);
    (d) The terms ``ERISA-covered plan'' and ``IRA'' mean, 
respectively, a plan subject to Part 4 of Title I of ERISA and a plan 
subject to section 4975 of the Code; and
    (e) The term ``RBC'' means Royal Bank of Canada, together with its 
current and future affiliates.
    Effective Date: This proposed temporary exemption, if granted, will 
be effective for the period beginning on the Conviction Date until the 
earlier of: The date that is twelve months following the Conviction 
Date; or the effective date of a final agency action made by the 
Department in connection with an application for long-term exemptive 
relief for the covered transactions described herein.
    Department's Comment: The Department is publishing this proposed 
temporary exemption in order to protect ERISA-covered plans and IRAs 
from certain costs and/or investment losses that may arise to the 
extent entities with a corporate relationship to RBCTC Bahamas lose 
their ability to rely on PTE 84-14 as of the Conviction Date, as 
described below.
    The proposed exemption, if granted, would provide relief from 
certain of the restrictions set forth in sections 406 and 407 of ERISA. 
No relief from a violation of any other law would be provided by this 
exemption, if granted, including any criminal conviction described 
herein.
    Furthermore, the Department cautions that the relief in this 
proposed exemption, if granted, would terminate immediately if, among 
other things, an entity within the RBC corporate structure is convicted 
of a crime described in Section I(g) of PTE 84-14 (other than the 
Conviction) during the effective period of the exemption. While such an 
entity could apply for a new exemption in that circumstance, the 
Department would not be obligated to grant the exemption. The terms of 
this proposed exemption have been specifically designed to permit plans 
to terminate their relationships in an orderly and cost effective 
fashion in the event of an additional conviction or a determination 
that it is otherwise prudent for a plan to terminate its relationship 
with an entity covered by the proposed exemption.

Summary of Facts and Representations

Background

    1. The Royal Bank of Canada (together with its current and future 
affiliates, RBC or the Applicant) is a Canadian corporation 
headquartered in Toronto, Ontario. RBC is Canada's largest bank and one 
of the largest banks in the world, with approximately 78,000 employees 
in offices through Canada, the United States, and 38 other countries. 
RBC provides personal and commercial banks, wealth management services, 
insurance, investor services, and capital markets products and services 
on a global basis. As of October 31, 2014, RBC had approximately 
CAD$457 billion in assets under management and CAD$4.6 trillion in 
assets under administration and equity attributable to shareholders of 
CAD$52.7 billion.
    2. RBC owns RBC Capital Markets, LLC, a U.S. registered broker-
dealer and a U.S. registered investment adviser. RBC also owns RBC 
Global Asset Management (U.S.) Inc., a U.S. registered investment 
adviser, as well as several other registered investment adviser 
affiliates in the United States and around the world.
    3. Royal Bank of Canada Trust Company (Bahamas) Limited (RBCTC 
Bahamas) is a wholly owned subsidiary of RBC located in the Bahamas, 
and is regulated by the Central Bank of the Bahamas. RBCTC Bahamas 
currently provides trust and company management services in all major 
currencies to international clients. RBCTC Bahamas currently employs 16 
full-time equivalents and 5 contractors, and has reported revenues of 
USD $5,143,861 in fiscal year 2015. As of the second quarter of 2016, 
RBCTC Bahamas has reported total assets under custody of $2.5 billion, 
which includes cash, real estate, art, securities, and interests in 
privately held companies. RBCTC Bahamas is not engaged in asset 
management activities and does not act as a fiduciary of any plans 
subject to Part 4 of Title I of ERISA (ERISA-covered plans) or section 
4975 of the Code (IRAs).
    4. RBCTC Bahamas trust and company management services include 
ongoing interaction with trusts' settlors

[[Page 70565]]

and beneficiaries, investment managers and advisors, and settlors' 
legal counsel, among others. RBCTC Bahamas also may appoint corporate 
directors (entities wholly owned by RBCTC Bahamas) for some of the 
underlying holding entities owned by the trusts for which RBCTC Bahamas 
acts as trustee. These entities hold assets (which could include cash 
marketable securities, privately held companies, art, yachts, and other 
property).
    5. Among RBCTC Bahamas's services is providing directors for 
corporations created by their clients. Such RBCTC Bahamas personnel 
perform the usual duties of corporate directors. Moreover, RBCTC 
Bahamas must properly keep the accounts, as they are subject to 
internal audit to ascertain that proper management is in place. As a 
result, RBCTC Bahamas provides trust and company accounting each year, 
variously including upon request, among other things, an account of all 
monies received and distributed. In addition, at the request of a 
client, RBCTC Bahamas will, among other things, assist in the 
appointment of investment advisors and proposed investment houses and 
assist in communication with legal advisors, investment advisors and 
corporate formation agents. Further, as requested, RBCTC Bahamas will, 
among other things, exercise all duties, responsibilities and powers as 
set out in the documentation governing RBCTC Bahamas's appointment as 
trustee and attend to all day to day administrative issues.
    6. Over the last several years, RBCTC Bahamas's operations have 
been reduced in scope. On November 4, 2015, RBCTC Bahamas announced 
that it had entered into a purchase and sale agreement with SMP 
Partners Group to sell its Trust, Custody and Fund Administration 
businesses in the Caribbean. This follows the announcement in November 
2014 that RBC would be exiting a number of its Wealth Management 
businesses in the Caribbean. Upon completion of the sale and orderly 
transfer of the structures and assets to new providers, RBCTC Bahamas 
will surrender its trust license back to the Central Bank of the 
Bahamas. The Applicant anticipates that this process will be completed 
in the next 12 to 24 months. RBC represents that, even if the sale is 
completed, ongoing operations will still be necessary to support the 
remaining assets. As a result, the requested exemption will still be 
required.

Investigation for Tax Fraud

    7. The Applicant has applied for an exemption in relation to a 
potential judgment of conviction against RBCTC Bahamas for aiding and 
abetting tax fraud, to be entered in France in the District Court of 
Paris, French Special Prosecutor No. 1120392066, French Investigative 
Judge No. JIRSIF/11/12 (the Conviction). The facts forming the basis of 
the Conviction reach back several years and involve investigations by 
French prosecutors. In January 2012, RBCTC Bahamas was summoned to 
appear before a French Judge of Instruction (the Investigative Judge) 
concerning an investigation into non-payment of French inheritance 
taxes by Guy Wildenstein and Alec Daniel Armand Wildenstein (the 
Wildensteins) following the death in 2001 of family patriarch Daniel 
Wildenstein. RBCTC Bahamas was placed under judicial investigation, and 
in December 2013, the Investigative Judge referred the case to the 
French national prosecutor of financial crimes (the Special Prosecutor) 
for a review and recommendation. In January 2015, the Special 
Prosecutor submitted a recommendation that RBCTC Bahamas and several 
others be charged with complicity in the Wildensteins' alleged tax 
fraud and money laundering.
    8. On April 9, 2015, the Paris Court of Appeal (the Court) for the 
District Court of Paris issued an Order of Dismissal and Referral 
before the Criminal Court (the Referral Order). In the Referral Order, 
RBCTC Bahamas is charged with complicity in the alleged tax fraud of 
the Wildensteins with respect to taxes allegedly owed to France on 
assets held in a Bahamian trust for which RBCTC Bahamas has served as 
successor trustee since 2004.\6\ Specifically, the Court found that the 
investigation produced sufficient charges against RBCTC Bahamas for 
having, in the Bahamas, beginning on November 19, 2004, aided and 
abetted tax fraud committed in Paris by Daniel Wildenstein's heirs by 
deliberately concealing a portion of the sums subject to French 
taxation on Daniel Wildenstein's estate, in particular the works of art 
placed in the ``Delta Trust'' of which RBCTC Bahamas was the trustee, 
deeds which are governed by and punishable under Articles 121-2, 121-6, 
121-7, 321-1, 321-3, 321-12 of the French Criminal Code and Articles 
1741 et 1745 of the French General Tax Code.
---------------------------------------------------------------------------

    \6\ The Referral Order charges both of the Wildensteins with 
multiple counts of tax fraud, notably for failing to disclose, and 
pay taxes on, assets held in various trusts following the death of 
Daniel Wildenstein. The Wildensteins, both of whom are among the 
beneficiaries of the trust for which RBCTC Bahamas has served as 
trustee since 2004, have been charged with failing to report and pay 
inheritance taxes on the assets held in that trust following the 
death in 2001 of Daniel Wildenstein, and again in an amended filing 
made in 2008.
---------------------------------------------------------------------------

    9. According to the Applicant, the pertinent facts that underlie 
these charges, as set out in the Referral Order, are as follows: on 
February 23, 1998, Daniel Wildenstein established a discretionary trust 
in the Bahamas called the Delta Trust. The Delta Trust was designed to 
be revocable up to the point of Daniel Wildenstein's death, then 
irrevocable thereafter. The Delta Trust was settled with works of art. 
Royal Bank of Scotland was the initial trustee of the Delta Trust. In 
early 2001, Royal Bank of Scotland was replaced as trustee by Coutts 
Trust Holdings Limited, which was succeeded by Coutts Trustees 
(Bahamas) Limited. On October 21, 2001, Daniel Wildenstein died in 
Paris. On April 28, 2002, Guy Wildenstein and his brother, Alec 
Wildenstein Sr., filed an inheritance tax statement in relation to the 
estate of their father, Daniel Wildenstein, as required by French tax 
laws. Guy Wildenstein and Alec Wildenstein Sr. did not disclose, in 
this inheritance tax statement, the existence of the Delta Trust or the 
existence of the assets therein. RBCTC Bahamas was appointed trustee in 
November of 2004, three years after Daniel Wildenstein's death and more 
than two years after Guy Wildenstein and Alec Wildenstein Sr. had filed 
their allegedly false inheritance tax statement.
    10. The Applicant represents that, according to the French 
authorities, the existence of the Delta Trust as well as the assets of 
the Delta Trust should have been disclosed to the French authorities by 
Guy Wildenstein and by Alec Wildenstein Sr. when they filed their 
inheritance tax statement in 2002.\7\ An inheritance tax would have 
followed in relation to these assets.
---------------------------------------------------------------------------

    \7\ The authorities allege that this disclosure should have 
occurred because the assets in the Delta Trust were initially 
revocable (i.e., the assets in trust could be revoked by Daniel 
Wildenstein up to the time of his death). As such, the authorities 
state that the assets in the Delta Trust belonged to Daniel 
Wildenstein's estate and were therefore taxable under French tax 
laws.
---------------------------------------------------------------------------

    11. The Referral Order provides that RBCTC Bahamas actually knew, 
or should have known, that Daniel Wildenstein was of French 
nationality, and that he died in France. The Referral Order also 
provides that, at the least, RBCTC should have investigated in greater 
detail the facts in relation to Daniel Wildenstein's residency and, 
likewise, the tax consequences of that

[[Page 70566]]

residency. In addition, the Referral Order provides that the Delta 
Trust did not operate as a discretionary trust for purposes of French 
tax law, which would have generally required the trustee to have 
control over the management of the trust's assets. Among other 
things,\8\ the Referral Order describes the existence of a management 
agreement between the trustee and the Wildenstein art gallery in New 
York as well as to the role played by the gallery as further evidence 
that the Delta Trust remained under the Wildenstein family's control 
before and after Daniel Wildenstein's death. Under the terms of the 
management agreement, the Wildenstein gallery was retained by the Delta 
Trust trustee to assist and to advise upon the management of the 
collection of art in trust. Finally, the Referral Order points out that 
RBCTC Bahamas filed an amended declaration with the Internal Revenue 
Service to declare the paintings in the Delta Trust which were present 
on U.S. territory at the time of Daniel Wildenstein's death, even 
though the Delta Trust was purportedly discretionary and irrevocable.
---------------------------------------------------------------------------

    \8\ The Applicant notes that the French authorities point to a 
``Letter of Wishes,'' which Daniel Wildenstein delivered to the then 
trustee, as evidence that the assets of the Delta Trust remained 
under Daniel Wildenstein's control during his lifetime.
---------------------------------------------------------------------------

    12. RBC contests it liability for aiding and abetting tax evasion. 
The trial commenced on January 4, 2016. On January 6, 2016, the Paris 
Criminal Court suspended the proceeding to probe the trial's 
constitutionality. The Applicant represents that the trial is scheduled 
to resume on September 22, 2016, and that the conviction date (if there 
is a conviction) is expected to be on or after October 14, 2016.

Significance of Class PTE 84-14 and the Violation of Condition I(g) of 
PTE 84-14

    13. The Department notes that the rules set forth in section 406 of 
the Employee Retirement Income Security Act of 1974, as amended (ERISA) 
and section 4975(c) of the Internal Revenue Code of 1986, as amended 
(the Code) proscribe certain ``prohibited transactions'' between plans 
and related parties with respect to those plans, known as ``parties in 
interest.'' \9\ Under the authority of section 408(a) of ERISA and 
section 4975(c)(2) of the Code, the Department has the authority to 
grant exemptions from such ``prohibited transactions'' in accordance 
with the procedures set forth in 29 CFR part 2570, subpart B (76 FR 
66637, 66644, October 27, 2011).
---------------------------------------------------------------------------

    \9\ For purposes of the Summary of Facts and Representations, 
references to specific provisions of Title I of ERISA, unless 
otherwise specified, refer also to the corresponding provisions of 
the Code.
---------------------------------------------------------------------------

    14. Class Prohibited Transaction Exemption 84-14 (PTE 84-14) \10\ 
exempts certain prohibited transactions between a party in interest and 
an ``investment fund'' (as defined in Section VI(b) of that exemption) 
\11\ in which a plan has an interest, if the investment manager 
satisfies the definition of ``qualified professional asset manager'' 
(QPAM) and satisfies additional conditions for the exemption. PTE 84-14 
was developed and granted based on the essential premise that broad 
relief could be afforded for all types of transactions in which a plan 
engages only if the commitments and the investments of plan assets and 
the negotiations leading thereto are the sole responsibility of an 
independent, discretionary, manager.\12\
---------------------------------------------------------------------------

    \10\ 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).
    \11\ An ``investment fund'' includes single customer and pooled 
separate accounts maintained by an insurance company, individual 
trusts and common, collective or group trusts maintained by a bank, 
and any other account or fund to the extent that the disposition of 
its assets (whether or not in the custody of the QPAM) is subject to 
the discretionary authority of the QPAM.
    \12\ See 75 FR 38837, 38839 (July 6, 2010).
---------------------------------------------------------------------------

    15. However, Section I(g) of PTE 84-14 prevents an entity that may 
otherwise meet the definition of ``QPAM'' from utilizing the exemptive 
relief provided by PTE 84-14, for itself and its client plans, if that 
entity or an ``affiliate'' \13\ thereof or any owner, direct or 
indirect, of a 5 percent or more interest in the QPAM has, within 10 
years immediately preceding the transaction, been either convicted or 
released from imprisonment, whichever is later, as a result of certain 
specified criminal activity described in that section.\14\ The 
Department notes that Section I(g) was included in PTE 84-14, in part, 
based on the expectation that a QPAM, and those who may be in a 
position to influence its policies, maintain a high standard of 
integrity.\15\ Accordingly, in the event that RBCTC is convicted of the 
crimes alleged in the Referral Order, QPAMs with certain corporate 
relationships to RBCTC, as well as their client ERISA-covered plans and 
IRAs will no longer be able to rely on PTE 84-14 without an additional 
individual exemption issued by the Department.
---------------------------------------------------------------------------

    \13\ Section VI(d) of PTE 84-14 defines the term ``affiliate'' 
for purposes of Section I(g) as ``(1) Any person directly or 
indirectly through one or more intermediaries, controlling, 
controlled by, or under common control with the person, (2) Any 
director of, relative of, or partner in, any such person, (3) Any 
corporation, partnership, trust or unincorporated enterprise of 
which such person is an officer, director, or a 5 percent or more 
partner or owner, and (4) Any employee or officer of the person 
who--(A) Is a highly compensated employee (as defined in Section 
4975(e)(2)(H) of the Code) or officer (earning 10 percent or more of 
the yearly wages of such person), or (B) Has direct or indirect 
authority, responsibility or control regarding the custody, 
management or disposition of plan assets.''
    \14\ For purposes of Section I(g) of PTE 84-14, a person shall 
be deemed to have been ``convicted'' from the date of the judgment 
of the trial court, regardless of whether that judgment stands on 
appeal.
    \15\ See 47 FR 56945, 56947 (December 21, 1982).
---------------------------------------------------------------------------

The RBC QPAMs and the Failure To Comply With PTE 84-14

    16. Certain current and future ``affiliates'' of RBCTC Bahamas, as 
that term is defined in section VI(d) of PTE 84-14, may act as QPAMs in 
reliance on PTE 84-14 (these entities are collectively referred to as 
the ``RBC QPAMs''). The primary U.S. bank and U.S. registered adviser 
affiliates in which RBC owns a significant interest, directly or 
indirectly, include the following: (1) RBC Global Asset Management 
(U.S.) Inc.; (2) RBC Global Asset Management (UK) Limited; (3) RBC 
Capital Markets, LLC; and (4) BlueBay Asset Management LLP. The 
Applicant also represents that there are other affiliated managers that 
could meet the definition of ``QPAM'' in the future, but which do not 
currently have ERISA or IRA clients. Additionally, there are other 
managers that are not currently registered as investment advisers under 
the Investment Advisers Act of 1940 but could become registered 
investment advisers in the future while managing ERISA and IRA assets 
and seek to use PTE 84-14 to facilitate certain transactions.
    17. RBC explains that the RBC QPAMs provide asset management 
services to thousands of ERISA-covered plans and IRAs. In managing 
these assets, the RBC QPAMs regularly rely on PTE 84-14 for, among 
other things, global fixed income, global equities, futures, options, 
swaps and other derivatives, alternative funds, including hedge funds, 
and similar instruments and strategies. The issuing documents for many 
instruments contain deemed representations regarding reliance, at least 
partially, on PTE 84-14.
    18. According to the Applicant, the investment management 
businesses that are operated out of the RBC QPAMs are separate from 
RBCTC Bahamas, and from the non-investment management business 
activities of RBCTC Bahamas that are the subject of criminal charges 
under French law. The Applicant states that RBC QPAMs have dedicated 
systems, management, risk and compliance officers. RBC represents that

[[Page 70567]]

the investment management businesses of the RBC QPAMs are subject to 
policies and procedures, and RBC QPAM personnel engage in training, 
designed to ensure that such businesses understand and abide by their 
fiduciary duties in accordance with applicable law.
    19. According to RBC, the policies and procedures create 
information barriers designed to prevent employees of the RBC QPAMs 
from gaining access to inside information that an affiliate may have 
acquired or developed in connection with the investment banking, 
treasury services or other investor services business activities. These 
policies and procedures apply to employees, officers, and directors of 
the RBC QPAMs. The Applicant also maintains an employee hotline for 
employees to express any concerns of wrongdoing anonymously.

Request for Relief

    20. At the time of this proposed temporary exemption, RBCTC 
(Bahamas) has not been convicted and therefore its conduct has not been 
determined to be criminal.\16\ Moreover, RBCTC (Bahamas) maintains that 
it engaged in no criminal conduct and it is mounting a defense in the 
French proceeding. Nevertheless, the Applicant states that if the Paris 
Criminal Court issues a Conviction of RBCTC Bahamas, the RBC QPAMs will 
be in violation of Section I(g) of PTE 84-14. In the event that the 
condition in Section I(g) of PTE 84-14 is violated, those asset 
managers can no longer rely on PTE 84-14 without a separate individual 
prohibited transaction exemption. Therefore, the Applicant has 
requested an exemption to allow the RBC QPAMs to continue to use PTE 
84-14, notwithstanding such Conviction.\17\
---------------------------------------------------------------------------

    \16\ The Applicant represents that there is an ongoing 
regulatory investigation into the matter in Hong Kong, but the 
Applicant is not aware of any indication that this investigation is 
leading to potential criminal indictments in Hong Kong.
    \17\ The Department notes that, in the event that RBCTC Bahamas 
is not convicted, the RBC QPAMs may continue to rely on PTE 84-14 
without additional exemptive relief.
---------------------------------------------------------------------------

Statutory Findings--Administratively Feasible

    21. The Applicant states that the proposed exemption is 
administratively feasible because it does not require any monitoring by 
the Department. Furthermore, the exemption's limited effective duration 
provides the Department the opportunity to make its determination 
whether or not long-term exemptive relief is warranted, without causing 
sudden and potentially costly harm to ERISA-covered plans and IRAs.

Statutory Findings--In the Interests of Affected Plans and IRAs

    22. The Applicant states that an exemption will be in the interest 
of the affected ERISA-covered plans and IRAs and their participants and 
beneficiaries. According to the Applicant, there are numerous 
transactions entered into by RBC QPAMs on behalf of their ERISA-covered 
plan and IRA clients that require the RBC QPAMs to meet the conditions 
in PTE 84-14. According to RBC, these include contracts entered into by 
RBC QPAMs on behalf of or as investment adviser for ERISA-covered 
plans, collective trusts and other funds subject to ERISA for certain 
outstanding transactions, including, but not limited to: The purchase 
and sale of debt and equity securities, and asset-backed securities; 
the purchase and sale of commodities; real estate financing and leasing 
arrangements; and certain derivative transactions such as futures, 
options, swaps, and forwards.
    23. The Applicant states that, in the event that the RBC QPAMs can 
no longer rely on PTE 84-14, counterparties to the above transactions 
could seek to terminate their contracts, resulting in significant 
losses to their ERISA-covered plan clients. Furthermore, according to 
RBC, in the event the Applicant no longer qualifies for relief under 
the PTE 84-14, many derivatives transactions and other contractual 
agreements automatically and immediately could be terminated without 
notice or action.
    24. The Applicant states that, without an exemption to continue to 
rely on PTE 84-14, ERISA-covered plan and IRA clients of RBC QPAMs may 
be required to seek other investment managers, at significant 
disruption and cost. RBC states that the process of transitioning to a 
new manager typically is lengthy, and likely would involve numerous 
steps each of which could last several months--including retaining a 
consultant, engaging in the request for proposals, negotiating 
contracts, and ultimately transitioning assets, as well as the 
transaction-related expenses incurred in connection with the purchase 
of securities.
    25. Furthermore, the Applicant states, many of the investments of 
ERISA-covered plan and IRA clients managed by RBC QPAMs could be 
difficult to transition to a new investment manager, and the transition 
of certain strategies, such as transitioning from a stable value fund, 
could create significant disruption for 40l(k) plans. The Applicant 
maintains that RBC QPAMs' inability to rely upon PTE 84-14 could result 
in significant, unplanned redemptions from pooled funds, which would in 
turn frustrate the QPAMs' efforts to effectively manage the pooled 
funds' assets and harm remaining plan investors by increasing the 
expense ratios of the investment funds.
    26. The Applicant believes that, depending on the strategy, the 
cost of liquidating assets in connection with transitioning clients to 
another manager could be significant. Furthermore, transaction costs 
may be higher in times of significant market volatility, especially 
with respect to certain strategies.
    Fixed Income. The Applicant states that RBC QPAMs rely on PTE 84-14 
when buying and selling fixed income products. As of June 30, 2015, the 
total portfolio of accounts managed by the RBC QPAMs that were invested 
in fixed income products was approximately $4.86 billion in market 
value. Of that total, approximately $2.82 billion consisted of ERISA-
covered assets, and approximately $2.04 billion consisted of public 
plan assets. According to the Applicant, those accounts are invested 
in, for example, the following instruments pursuant to various fixed 
income strategies: Investment-grade bonds, leveraged finance 
instruments, emerging market sovereign debt, emerging market corporate 
debt, convertible bonds, multi-asset credit instruments, and short-
duration government bonds.
    Costs of Liquidating Fixed Income. According to the Applicant, if 
RBC QPAMs could no longer rely on PTE 84-14, a typical ERISA-covered 
plan or IRA client of the RBC QPAMs could suffer different liquidation 
costs depending on the strategy employed within fixed income. For 
example, investment grade bonds and emerging market sovereign debt 
could be liquidated for a cost of between 25-50 basis points, not 
including reinvestment costs. Leveraged finance and emerging market 
corporate debt may be more difficult to liquidate and costs may range 
from 50-150 basis points, not including reinvestment costs. The costs 
of liquidating convertible bonds could be between 50-75 basis points, 
and costs of liquidating multi-asset credit could be between 35-100 
basis points, not including reinvestment costs.

Statutory Findings--Protective of the Rights of Participants of 
Affected Plans and IRAs

    27. The Applicant proposed certain conditions it believes are 
protective of the rights of participants and beneficiaries of ERISA-
covered plans and IRAs with respect to the transactions described 
herein. The

[[Page 70568]]

Department has determined to revise certain of those conditions, and to 
add certain new conditions, in order to make its required finding that 
the requested exemption is protective of the rights of participants and 
beneficiaries of affected plans and IRAs. In this regard, the 
Department has tentatively determined that the following conditions 
adequately protect the rights of participants and beneficiaries of 
affected plans and IRAs with respect to the transactions that would be 
covered by this temporary exemption, if granted.
    28. Several of these conditions highlight the Department's 
expectation that the affected RBC QPAMs were not involved in the 
misconduct by RBCTC Bahamas that is the subject of the Conviction.\18\ 
For example, relief under this proposed exemption is only available to 
the extent: (1) RBC QPAMs, including their officers, directors, agents 
other than RBC, and employees, did not know of, have reason to know of, 
or participate in the criminal conduct of RBCTC Bahamas that is the 
subject of the Conviction (for purposes of this requirement, 
``participated in'' includes the knowing or tacit approval of the 
misconduct underlying the Conviction); \19\ (2) any failure of those 
QPAMs to satisfy Section I(g) of PTE 84-14 arose solely from the 
Conviction; and (3) the RBC QPAMs (including their officers, directors, 
agents other than RBC, and employees of such RBC QPAMs) did not receive 
direct compensation, or knowingly receive indirect compensation, in 
connection with the criminal conduct that is the subject of the 
Conviction.
---------------------------------------------------------------------------

    \18\ The Department notes that, at the time of publication of 
this proposed temporary exemption, RBCTC Bahamas has not been 
convicted. In the event that RBCTC Bahamas is not convicted, the RBC 
QPAMs may continue to rely on PTE 84-14 without additional exemptive 
relief.
    \19\ The Applicant represents that, while certain other entities 
in the RBC corporate family were generally aware of RBCTC 
(Bahamas)'s responsibilities, including the administration of 
various trusts, no such entity was involved in the day-to-day 
operations of the trusts and, the alleged misconduct did not relate 
to the asset management services provided by the RBC QPAMs.
---------------------------------------------------------------------------

    29. The Department expects the RBC QPAMs to rigorously ensure that 
the individuals associated with the criminal conduct of RBCTC Bahamas 
will not be employed or knowingly engaged by such QPAMs. In this 
regard, the temporary exemption, if granted as proposed, mandates that 
the RBC QPAMs will not employ or knowingly engage any of the 
individuals that participated in criminal conduct that is the subject 
of the Conviction. For purposes of this requirement, ``participated 
in'' includes the knowing or tacit approval of the misconduct 
underlying the Conviction. Further, the RBC 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 or the Code and 
managed by such RBC QPAM, to enter into any transaction with RBCTC 
Bahamas or engage RBCTC Bahamas to provide any service to such 
investment fund, for a direct or indirect fee borne by such investment 
fund, regardless of whether such transaction or service may otherwise 
be within the scope of relief provided by an administrative or 
statutory exemption.
    30. The RBC QPAMs must comply with each condition of PTE 84-14, as 
amended, with the sole exceptions of the violation of Section I(g) of 
PTE 84-14 that is attributable to the Conviction. Further, any failure 
of the RBC QPAMs to satisfy Section I(g) of PTE 84-14 arose solely from 
the Conviction.
    31. No relief will be provided by the temporary exemption, if 
granted, to the extent that any entities holding assets that constitute 
the assets of an ERISA-covered plan or IRA were involved in the 
criminal conduct that is the subject of the Conviction. Further, no 
relief will be provided to the extent RBCTC Bahamas provides any 
discretionary asset management services to ERISA-covered plans or IRAs, 
or otherwise acts as a fiduciary with respect to ERISA-covered plan and 
IRA assets.
    32. The Department believes that robust policies and training are 
warranted where, as here, alleged criminal misconduct has occurred 
within a corporate organization that is affiliated with one or more 
QPAMs managing plan investments in reliance on PTE 84-14. Therefore, 
this proposed temporary exemption, if granted, requires that each RBC 
QPAM must immediately develop, implement, maintain, and follow written 
policies (the Policies) requiring and reasonably designed to ensure 
that: The asset management decisions of the RBC QPAM are conducted 
independently of the management and business activities of RBC, 
including RBCTC Bahamas; the RBC QPAM fully complies with ERISA's 
fiduciary duties and with 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 RBC QPAM does not knowingly participate in any other person's 
violation of ERISA or the Code with respect to ERISA-covered plans and 
IRAs; any filings or statements made by the RBC 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; the RBC 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; and the RBC QPAM complies with 
the terms of this temporary exemption, if granted. Any violation of, or 
failure to comply with these items is corrected promptly upon 
discovery, and any such violation or compliance failure not promptly 
corrected is reported, upon discovering the failure to promptly 
correct, in writing, to appropriate corporate officers, the head of 
compliance and the General Counsel (or their functional equivalent) of 
the relevant RBC QPAM, and an appropriate fiduciary of any affected 
ERISA-covered plan or IRA where such fiduciary is independent of RBC.
    33. The Department has also imposed a condition that requires each 
RBC QPAM to immediately develop and implement a program of training 
(the Training), for all relevant RBC QPAM asset/portfolio management, 
trading, legal, compliance, and internal audit personnel. The Training 
must 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), ethical conduct, the 
consequences for not complying with the conditions of this temporary 
exemption, if granted (including any loss of exemptive relief provided 
herein), and prompt reporting of wrongdoing.
    34. This temporary exemption, if granted, requires RBC QPAMs to 
enter into certain contractual obligations in connection with the 
provision of services to their clients. It is the Department's view 
that the condition for exemptive relief requiring these contractual 
obligations is essential to the Department's ability to make its 
findings that the proposed temporary exemption is protective of the 
rights of the participants and beneficiaries of ERISA-covered and IRA 
plan clients of RBC QPAMs under section 408(a) of ERISA. In this 
regard, Section I(i) of the proposed temporary exemption provides that, 
as of the effective date of this temporary exemption, if granted, with 
respect to any arrangement,

[[Page 70569]]

agreement, or contract between a RBC QPAM and an ERISA-covered plan or 
IRA for which a RBC QPAM provides asset management or other 
discretionary fiduciary services, each RBC QPAM must agree: 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 (and to promptly correct any 
inadvertent prohibited transactions), and to comply with the standards 
of prudence and loyalty set forth in section 404 of ERISA with respect 
to each such ERISA-covered plan and IRA; to indemnify and hold harmless 
the ERISA-covered plan or IRA for any damages resulting from a 
violation of applicable laws, a breach of contract, or any claim 
arising out of the failure of such RBC QPAM to qualify for the 
exemptive relief provided by PTE 84-14 as a result of a violation of 
Section I(g) of PTE 84-14 other than the Conviction; not to require (or 
otherwise cause) the ERISA-covered plan or IRA to waive, limit, or 
qualify the liability of the RBC QPAM for violating ERISA or the Code 
or engaging in prohibited transactions; 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 RBC 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 RBC; not to restrict the ability of 
such ERISA-covered plan or IRA to terminate or withdraw from its 
arrangement with the RBC QPAM (including any investment in a separately 
managed account or pooled fund subject to ERISA and managed by such 
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 as a result of an actual lack of liquidity of the underlying 
assets, provided that such restrictions are applied consistently and in 
like manner to all such investors; and 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. Furthermore, any contract, agreement or 
arrangement between an RBC QPAM and its ERISA-covered plan or IRA 
client must not contain exculpatory provisions disclaiming or otherwise 
limiting liability of the RBC QPAM for a violation of such agreement's 
terms.
    35. Within six (6) months of the date of publication of a notice of 
temporary exemption in the Federal Register, if granted, each RBC QPAM 
will: Provide a notice of its obligations under Section I(i) to each 
ERISA-covered plan and IRA for which the RBC QPAM provides asset 
management or other discretionary fiduciary services; and separately 
warrant in writing to each such ERISA-covered plan and IRA its 
obligations under subparagraph (1) of Section I(i).
    36. Each RBC QPAM must maintain records necessary to demonstrate 
that the conditions of this temporary exemption, if granted, have been 
met for six (6) years following the date of any transaction for which 
such RBC QPAM relies upon the relief in the temporary exemption.
    37. Furthermore, the proposed temporary exemption mandates that, 
during the effective period of this temporary exemption, if granted, 
neither RBCTC Bahamas nor any affiliate enters into a Deferred 
Prosecution Agreement (a DPA) or a Non-Prosecution Agreement (an NPA) 
with the Department of Justice, in connection with conduct described in 
section I(g) of PTE 84-14 or section 411 of ERISA. The Applicant 
represents that, with the exception of an investigation for LIBOR 
manipulation, RBC is not the subject of any current investigation 
involving criminal authorities.\20\ Furthermore, the Applicant 
represents that RBC currently does not have a reasonable basis to 
believe that there are any pending criminal investigations involving 
RBC or any of its affiliated companies that would cause a reasonable 
plan or IRA customer not to hire or retain the institution as a QPAM.
---------------------------------------------------------------------------

    \20\ The Applicant states that RBC has been the subject of 
demands for information from various governmental and regulatory 
authorities.
---------------------------------------------------------------------------

    38. The proposed exemption, if granted, would provide relief from 
certain of the restrictions set forth in Section 406 and 407 of ERISA. 
Such a granted exemption would not provide relief from any other 
violation of law, including any criminal conviction not expressly 
described herein. Pursuant to the terms of this proposed exemption, if 
granted, any criminal conviction not expressly described herein, but 
otherwise described in Section I(g) of PTE 84-14 and attributable to 
the applicant for purposes of PTE 84-14, would result in the 
applicant's loss of this exemption, if granted.

Summary

    39. Given the revised and new conditions described above, the 
Department has tentatively determined that the relief sought by the 
Applicants satisfies the statutory requirements for an exemption under 
section 408(a) of ERISA.

Notice to Interested Persons

    Written comments and requests for a public hearing on the proposed 
temporary exemption should be submitted to the Department within seven 
(7) days from the date of publication of this Federal Register Notice. 
Given the short comment period, the Department will consider comments 
received after such date, in connection with its consideration of more 
permanent relief.
    Warning: Do not include any personally identifiable information 
(such as name, address, or other contact information) or confidential 
business information that you do not want publicly disclosed. All 
comments may be posted on the Internet and can be retrieved by most 
Internet search engines.

FOR FURTHER INFORMATION CONTACT: Ms. Anna Mpras Vaughan of the 
Department, telephone (202) 693-8565. (This is not a toll-free number.)

Northern Trust Corporation (Together With Its Current and Future 
Affiliates, Northern or the Applicant), Located in Chicago, Illinois

[Exemption Application No. D-11875]

Proposed Temporary Exemption

    The Department is considering granting a temporary exemption under 
the authority of section 408(a) of the Employee Retirement Income 
Security Act of 1974, as amended, (ERISA or the Act) and section 
4975(c)(2) of the Internal Revenue Code of 1986, as amended (the Code), 
and in accordance with the procedures set forth in 29 CFR part 2570, 
subpart B (76 FR 66637, 66644, October 27, 2011).\21\
---------------------------------------------------------------------------

    \21\ For purposes of this proposed temporary exemption, 
references to section 406 of Title I of the Act, unless otherwise 
specified, should be read to refer as well to the corresponding 
provisions of section 4975 of the Code.

---------------------------------------------------------------------------

[[Page 70570]]

Section I: Covered Transactions
    If the proposed temporary exemption is granted, certain entities 
with specified relationships to Northern Trust Fiduciary Services 
(Guernsey) ltd. (hereinafter, the Northern QPAMs, as further defined in 
Section II(b)) will not be precluded from relying on the exemptive 
relief provided by Prohibited Transaction Class Exemption 84-14 (PTE 
84-14),\22\ notwithstanding a judgment of conviction against Northern 
Trust Fiduciary Services (Guernsey) ltd. to be entered in France in the 
District Court of Paris, for aiding and abetting tax fraud (the 
Conviction, as further defined in Section II(a)),\23\ for a period of 
up to twelve months beginning on the date of the Conviction (the 
Conviction Date), provided that the following conditions are satisfied:
---------------------------------------------------------------------------

    \22\ 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).
    \23\ Section I(g) of PTE 84-14 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 
aiding and abetting tax evasion.
---------------------------------------------------------------------------

    (a) The Northern QPAMs (including their officers, directors, agents 
other than Northern, and employees of such Northern QPAMs) did not know 
of, have reason to know of, or participate in the criminal conduct of 
NTFS that is the subject of the Conviction (for purposes of this 
paragraph (a), ``participate in'' includes the knowing or tacit 
approval of the misconduct underlying the Conviction);
    (b) The Northern QPAMs (including their officers, directors, agents 
other than Northern, and employees of such Northern QPAMs) did not 
receive direct compensation, or knowingly receive indirect 
compensation, in connection with the criminal conduct that is the 
subject of the Conviction;
    (c) The Northern QPAMs will not employ or knowingly engage any of 
the individuals that participated in the criminal conduct that is the 
subject of the Conviction (for purposes of this paragraph (c), 
``participated in'' includes the knowing or tacit approval of the 
misconduct underlying the Conviction);
    (d) A Northern 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 or the Code and managed by such Northern 
QPAM, to enter into any transaction with NTFS or engage NTFS to provide 
any service to such investment fund, for a direct or indirect fee borne 
by such investment fund, regardless of whether such transaction or 
service may otherwise be within the scope of relief provided by an 
administrative or statutory exemption;
    (e) Any failure of the Northern QPAMs to satisfy Section I(g) of 
PTE 84-14 arose solely from the Conviction;
    (f) No entities holding assets that constitute 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) were involved in the criminal conduct 
that is the subject of the Conviction;
    (g) NTFS has not provided nor will provide discretionary asset 
management services to ERISA-covered plans or IRAs, or otherwise will 
act as a fiduciary with respect to ERISA-covered plan and IRA assets;
    (h)(1) Each Northern QPAM must immediately develop, implement, 
maintain, and follow written policies (the Policies) requiring and 
reasonably designed to ensure that:
    (i) The asset management decisions of the Northern QPAM are 
conducted independently of the management and business activities of 
Northern, including NTFS and Northern's non-asset management 
affiliates;
    (ii) The Northern QPAM fully complies with ERISA's fiduciary duties 
and with 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 Northern 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 Northern 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 Northern 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 Northern QPAM complies with the terms of this temporary 
exemption, if granted; and
    (vii) Any violation of, or failure to comply with, an item in 
subparagraph (ii) through (vi), is corrected promptly upon discovery, 
and any such violation or compliance failure not promptly corrected is 
reported, upon discovering the failure to promptly correct, in writing, 
to appropriate corporate officers, the head of compliance and the 
General Counsel (or their functional equivalent) of the relevant 
Northern QPAM, and an appropriate fiduciary of any affected ERISA-
covered plan or IRA where such fiduciary is independent of Northern; 
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 Northern or 
beneficially owned by an employee of Northern or its affiliates, such 
fiduciary does not need to be independent of Northern. A Northern QPAM 
will not be treated as having failed to develop, implement, maintain, 
or follow the Policies, provided that it corrects any instance of 
noncompliance promptly when discovered or when it reasonably should 
have known of the noncompliance (whichever is earlier), and provided 
that it adheres to the reporting requirements set forth in this 
subparagraph (vii);
    (2) Each Northern QPAM must immediately develop and implement a 
program of training (the Training), conducted at least annually, for 
all relevant Northern QPAM asset/portfolio management, trading, legal, 
compliance, and internal audit personnel. The Training must 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), ethical conduct, the consequences 
for not complying with the conditions of this temporary exemption, if 
granted (including any loss of exemptive relief provided herein), and 
prompt reporting of wrongdoing;
    (i) Effective as of the effective date of this temporary exemption, 
if granted, with respect to any arrangement, agreement, or contract 
between a Northern QPAM and an ERISA-covered plan or IRA for which a 
Northern QPAM provides asset management or other discretionary 
fiduciary services, each Northern QPAM agrees:
    (1) To comply with ERISA and the Code, as applicable with respect 
to such ERISA-covered plan or IRA; to refrain from engaging in 
prohibited transactions that are not otherwise exempt (and to promptly 
correct any inadvertent prohibited transactions); and to comply with 
the standards of prudence and loyalty set forth in section 404 of ERISA

[[Page 70571]]

with respect to each such ERISA-covered plan and IRA;
    (2) Not to require (or otherwise cause) the ERISA-covered plan or 
IRA to waive, limit, or qualify the liability of the Northern 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 Northern 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 Northern;
    (4) Not to restrict the ability of such ERISA-covered plan or IRA 
to terminate or withdraw from its arrangement with the Northern QPAM 
(including any investment in a separately managed account or pooled 
fund subject to ERISA and managed by such 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 as a result of an actual 
lack of liquidity of the underlying assets, provided that such 
restrictions are applied consistently and in like manner to all such 
investors;
    (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;
    (6) Not to include exculpatory provisions disclaiming or otherwise 
limiting liability of the Northern QPAM for a violation of such 
agreement's terms; and
    (7) To indemnify and hold harmless the ERISA-covered plan or IRA 
for any damages resulting from a violation of applicable laws, a breach 
of contract, or any claim arising out of the failure of such Northern 
QPAM to qualify for the exemptive relief provided by PTE 84-14 as a 
result of a violation of Section I(g) of PTE 84-14 other than the 
Conviction.
    Within six (6) months of the date of publication of a notice of 
temporary exemption in the Federal Register, if granted, each Northern 
QPAM will: Provide a notice of its obligations under this Section I(i) 
to each ERISA-covered plan and IRA for which a Northern QPAM provides 
asset management or other discretionary fiduciary services; and 
separately warrant in writing to each such ERISA-covered plan and IRA 
its obligations under subparagraph (1) of this Section I(i);
    (j) The Northern QPAMs comply with each condition of PTE 84-14, as 
amended, with the sole exceptions of the violations of Section I(g) of 
PTE 84-14 that are attributable to the Conviction;
    (k) Each Northern QPAM will maintain records necessary to 
demonstrate that the conditions of this temporary exemption, if 
granted, have been met, for six (6) years following the date of any 
transaction for which such Northern QPAM relies upon the relief in the 
temporary exemption, if granted;
    (l) During the effective period of this temporary exemption, if 
granted, neither Northern nor any affiliate enters into a Deferred 
Prosecution Agreement (a DPA) or a Non-Prosecution Agreement (an NPA) 
with the U.S Department of Justice, in connection with conduct 
described in Section I(g) of PTE 84-14 or section 411 of ERISA; and
    (m) A Northern QPAM will not fail to meet the terms of this 
temporary exemption, if granted, solely because a different Northern 
QPAM fails to satisfy a condition for relief under this temporary 
exemption, if granted, described in Sections I(c), (d), (h), (i), (j), 
and (k).
Section II: Definitions
    (a) The term ``Conviction'' means the potential judgment of 
conviction against NTFS for aiding and abetting tax fraud to be entered 
in France in the District Court of Paris, French Special Prosecutor No. 
1120392066, French Investigative Judge No. JIRSIF/11/12;
    (b) The term ``Northern QPAM'' means a ``qualified professional 
asset manager'' (as defined in section VI(a) \24\ of PTE 84-14) that 
relies on the relief provided by PTE 84-14 and with respect to which 
NTFS is a current or future ``affiliate'' (as defined in section VI(d) 
of PTE 84-14);
---------------------------------------------------------------------------

    \24\ 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.
---------------------------------------------------------------------------

    (c) The term ``NTFS'' means Northern Trust Fiduciary Services 
(Guernsey) ltd., an affiliate'' of Northern (as defined in section 
VI(c) of PTE 84-14) located in Guernsey;
    (d) The terms ``ERISA-covered plan'' and ``IRA'' mean, 
respectively, a plan subject to Part 4 of Title I of ERISA and a plan 
subject to section 4975 of the Code; and
    (e) The term ``Northern'' means Northern Trust Corporation, 
together with its current and future affiliates.
    Effective Date: This proposed temporary exemption, if granted, will 
be effective for the period beginning on the Conviction Date until the 
earlier of: The date that is twelve months following the Conviction 
Date; or the effective date of a final agency action made by the 
Department in connection with an application for long-term exemptive 
relief for the covered transactions described herein.
    Department's Comment: The Department is publishing this proposed 
temporary exemption in order to protect ERISA-covered plans and IRAs 
from certain costs and/or investment losses that may arise to the 
extent entities with a corporate relationship to NTFS lose their 
ability to rely on PTE 84-14 as of the Conviction Date, as described 
below.
    The proposed exemption, if granted, would provide relief from 
certain of the restrictions set forth in sections 406 and 407 of ERISA. 
No relief from a violation of any other law would be provided by this 
exemption, if granted, including any criminal conviction described 
herein.
    Furthermore, the Department cautions that the relief in this 
proposed exemption, if granted, would terminate immediately if, among 
other things, an entity within the Northern corporate structure is 
convicted of a crime described in Section I(g) of PTE 84-14 (other than 
the Conviction) during the effective period of the exemption. While 
such an entity could apply for a new exemption in that circumstance, 
the Department would not be obligated to grant the exemption. The terms 
of this proposed exemption have been specifically designed to permit 
plans to terminate their relationships in an orderly and cost effective 
fashion in the event of an additional conviction or a determination 
that it is otherwise prudent for a plan to terminate its relationship 
with an entity covered by the proposed exemption.

Summary of Facts and Representations

Background

    1. Northern Trust Corporation (together with its current and future 
affiliates, Northern or the Applicant) is a financial holding company 
that

[[Page 70572]]

provides investment management, asset and fund administration, 
fiduciary, and banking services for corporations, institutions, and 
affluent individuals. Northern conducts business through various U.S. 
and non-U.S. subsidiaries, including The Northern Trust Company (the 
Bank), an Illinois bank headquartered in Chicago, Illinois.
    2. The Bank was founded in 1889 and conducts its business through 
its U.S. operations, its branches in Toronto, London, Australia, 
Beijing, the Cayman Islands and Singapore, as well as various U.S. and 
non-U.S. subsidiaries. The Bank is a member of the Federal Reserve 
System, its deposits are insured by the Federal Deposit Insurance 
Corporation and it is subject to regulation by both such entities, as 
well as the Division of Banking of the Illinois Department of Financial 
and Professional Regulation.
    As of December 31, 2015, Northern had a total of 16,200 active 
employees, including 7,990 employees of the Bank. As of the same date, 
Northern had consolidated assets of approximately $117 billion. Of that 
consolidated figure, approximately $116 billion are assets of the Bank. 
In addition, as of December 31, 2015, Northern had assets under custody 
of approximately $6.1 trillion, and assets under management of 
approximately $875 billion.
    3. The Bank has a significant trust and custody business and acts 
as trustee for employee benefit plans subject to Part 4 of Title I of 
ERISA (ERISA-covered plans), individual retirement accounts subject to 
section 4975 of the Code (IRAs) and other accounts subject to ERISA or 
Section 4975 of the Code. The Bank also maintains ERISA-governed 
collective investment trusts and other commingled vehicles for 
investment of pension assets. Northern also has a number of direct and 
indirect subsidiary registered investment advisers that are subject to 
the Investment Advisers Act of 1940 and that provide discretionary 
investment management services to ERISA and IRA customers.
    4. Northern Trust Fiduciary Services (Guernsey) ltd. (NTFS) is an 
indirect wholly-owned subsidiary of Northern. NTFS is incorporated in 
Guernsey, and is regulated by the Guernsey Financial Services 
Commission. NTFS currently provides trust and company management and 
administration services to international clients. NTFS currently 
employs 22.6 full-time equivalents, and has reported revenues of GBP 5 
million (approximately $7 million) in fiscal year 2015. As of the 
second quarter of 2016, NTFS reported total assets under trusteeship of 
GBP 32 billion (approximately $ 42 billion), which includes cash, real 
estate, art, securities, and interests in privately held companies. 
NTFS is not engaged in asset management activities for, and does not 
act as a fiduciary of, any ERISA plan or IRA.
    5. The trust and company management and administration services 
provided by NTFS include ongoing interaction with the settlor and 
beneficiaries, investment managers and advisors, and the settlor's 
legal counsel, among others. NTFS also may appoint individual directors 
that are personnel of NTFS, if required, or more commonly corporate 
directors (entities wholly owned by NTFS) to act as the directors of 
some of the underlying holding companies owned by the trusts for which 
NTFS acts as trustee. These companies hold assets (which could include 
cash, marketable securities, privately held companies, art, real estate 
and other property).
    6. The services provided by NTFS may include the provision of 
corporate secretarial support for companies created by its clients. In 
addition, NTFS is required to keep the accounts of the trusts to which 
it is appointed, and may also maintain the financial records of the 
asset holding companies it administers.
    Financial information may be provided to the settlor or 
beneficiaries on request, to the extent permitted by applicable law and 
the documentation governing NTFS' appointment.
    In addition, at the request of a client or based on their fiduciary 
powers as trustee, NTFS will, among other things, act as directed or 
discretionary trustee, appoint investment advisers or managers, and 
exercise all duties, responsibilities and powers as set out in the 
documentation governing NTFS's appointment and attend to all day to day 
administrative issues.
    NTFS operates based on internal policies and procedures of the 
Northern, and is subject to internal audit to ascertain compliance. 
NTFS is managed by a board of directors, which meets at least 
quarterly. In addition, the board has delegated certain powers to an 
Acceptance Committee for consideration of new business, a Fiduciary 
Committee for the review of the companies' fiduciary activities, a 
Discretionary Committee for consideration of the exercise of 
discretionary powers by NTFS as trustee and a Risk Committee for 
consideration and management of risks.

Investigation for Tax Fraud

    7. The Applicant has applied for an exemption in relation to a 
potential judgment of conviction against NTFS for aiding and abetting 
tax fraud, to be entered in France in the District Court of Paris, 
French Special Prosecutor No. 1120392066, French Investigative Judge 
No. JIRSIF/11/12 (the Conviction). The facts forming the basis of the 
Conviction reach back several years and involve investigations by 
French prosecutors. In 2010, French prosecutors opened judicial 
investigations questioning whether Guy Wildenstein and Alec Daniel 
Armand Wildenstein (the Wildensteins), heirs to a set of trusts 
established by family patriarch Daniel Wildenstein, had engaged in 
money laundering, bankruptcy-related fraud, forgery and/or tax evasion 
in connection with their decision not to include trust assets in French 
tax filings made following Daniel Wildenstein's death in 2001. NTFS, as 
successor trustee to the trusts, was itself investigated by French 
prosecutors.
    8. On April 9, 2015, the investigating authorities for the District 
Court of Paris issued an Order of Partial Discharge and Referral before 
the Criminal Court (the Referral Order). The Referral Order charges 
both Guy and Alec Wildenstein with several counts of tax fraud for 
failing to disclose, and pay taxes on, assets held in various trusts 
following the 2001 death of their father, Daniel Wildenstein. One of 
eight defendants in the Referral Order, NTFS is charged with violations 
of Articles 121-2, 121-6, and 121-7 of the French Criminal Code, and 
Articles 1741 et 1745 of the French General Tax Code for alleged 
complicity in the Wildensteins' alleged tax fraud based on assets held 
in trust for certain beneficiaries, including the Wildensteins. The 
portion of the case relevant to NTFS relates to assets held in two 
Guernsey trusts for which NTFS served as successor trustee since 1999: 
\25\ the ``1989 Sonstrust'' (the Sons Trust) and the ``1989 
Davidtrust'' (the David Trust). The trusts include properties located 
in Kenya, the British Virgin Islands, 740 Madison Avenue and 19 East 
64th Street in New York City, shares of Wildenstein and Co Inc., and of 
various art galleries. The French authorities state that their 
investigation produced sufficient information to allege that NTFS, in 
Guernsey, beginning in September 1999, aided and abetted tax fraud 
committed in Paris by Daniel Wildenstein's heirs through the alleged 
concealment of a portion of the assets that the French state are 
subject to French estate taxes owed by the Wildensteins.
---------------------------------------------------------------------------

    \25\ Northern acquired Baring Trustees (Guernsey) Limited in 
2005, and thereafter renamed it NTFS.
---------------------------------------------------------------------------

    9. According to the Applicant, the pertinent facts that underlie 
these

[[Page 70573]]

charges, as set out in the Referral Order, are as follows: On February 
23, 1989, Daniel Wildenstein established two irrevocable and 
discretionary trusts in Bermuda, the Sons Trust and the David Trust. 
Bermuda Trust Company Limited was appointed as trustee. The Sons Trust 
was incorporated for the benefit of the children of Daniel Wildenstein, 
Guy and Alec, and of his second wife, Sylvia Roth-Wildenstein. The 
David Trust was incorporated for the benefit of the grandchildren of 
Daniel Wildenstein. In September 1999, Baring Trustees (Guernsey) 
Limited became the trustee of these two trusts, replacing Baring 
Brothers (Guernsey) Limited, which had been the trustee since 1990, 
replacing Bermuda Trust Company Limited. The Applicant states that, in 
2005, following the purchase of Baring's financial institutions group 
by the Northern Trust group, Baring Trustees (Guernsey) Limited became 
Northern Trust Fiduciary Services (Guernsey) Limited.
    On October 21, 2001, Daniel Wildenstein died in Paris. On April 28, 
2002, Guy Wildenstein and his brother, Alec Wildenstein Sr., filed an 
inheritance tax statement in relation to their father Daniel 
Wildenstein's estate. The statement did not identify the Sons Trust and 
the David Trust or the assets held by these trusts.
    10. The Applicant represents that, according to the French 
authorities, the existence of the Sons Trust and David Trust, as well 
as the assets of these trusts, should have been disclosed by the 
Wildensteins when they filed their inheritance tax statement. The 
French state that these assets are subject to French taxes, and that an 
inheritance tax would have been imposed on these assets.
    11. The Applicant represents that the French authorities' position 
is that the Sons Trust and David Trust contained assets that the 
Wildensteins were required to identify because the trusts are, in their 
view, non-discretionary. In this regard, the Referral Order describes 
the following allegations made by the French prosecutor:
     The assets placed within the trusts are held by companies, 
and the trustee does not have sufficient control of the companies or 
the assets.
     Daniel Wildenstein was co-trustee, and during his lifetime 
he could have asked the trustee to distribute all of the trusts' assets 
to the beneficiaries.
     In addition to naming a trustee, the trust deeds also 
named an individual to fulfill the role of ``protector'' of the trusts, 
a Wildenstein family attorney who was financially dependent upon the 
family.
     The protector permitted certain financial flows debited 
from the Sons Trust bank account without the trustee's consent, and 
these money flows were later re-characterized as loans.
     The trusts operated abnormally and there was some 
commingling between the trusts' assets and Daniel Wildenstein's assets.
     The trustee's fees were too low in relation to the value 
of the assets in the trusts, and the assets were actually managed by 
companies without supervision by the trustee.
    12. NTFS contests its liability for aiding and abetting tax 
evasion. The trial commenced on January 4, 2016. On January 6, 2016, 
the Criminal Court of Paris suspended the proceeding to probe the 
trial's constitutionality. The trial resumed on September 22, 2016. The 
Applicant expects the trial to end on October 20, 2016.
    13. The Applicant represents that on the last day of trial, the 
court will announce when it will render its decision (generally a few 
weeks later). The Applicant states that the parties will have 10 days 
from the conviction ruling/decision date to lodge an appeal. Further, 
the Applicant states that if appeals are lodged, any criminal judgment 
issued after the trial will remain non-final until the appellate 
process concludes. In addition, the Applicant states that if none of 
the parties lodges an appeal, the criminal judgment will be final.

Significance of Class PTE 84-14 and the Violation of Condition I(g) of 
PTE 84-14

    14. The Department notes that the rules set forth in section 406 of 
the Employee Retirement Income Security Act of 1974, as amended (ERISA) 
and section 4975(c) of the Internal Revenue Code of 1986, as amended 
(the Code) proscribe certain ``prohibited transactions'' between plans 
and related parties with respect to those plans, known as ``parties in 
interest.'' \26\ Under the authority of section 408(a) of ERISA and 
section 4975(c)(2) of the Code, the Department has the authority to 
grant exemptions from such ``prohibited transactions'' in accordance 
with the procedures set forth in 29 CFR part 2570, subpart B (76 FR 
66637, 66644, October 27, 2011).
---------------------------------------------------------------------------

    \26\ For purposes of the Summary of Facts and Representations, 
references to specific provisions of Title I of ERISA, unless 
otherwise specified, refer also to the corresponding provisions of 
the Code.
---------------------------------------------------------------------------

    15. Class Prohibited Transaction Exemption 84-14 (PTE 84-14) \27\ 
exempts certain prohibited transactions between a party in interest and 
an ``investment fund'' (as defined in Section VI(b) of that exemption) 
\28\ in which a plan has an interest, if the investment manager 
satisfies the definition of ``qualified professional asset manager'' 
(QPAM) and satisfies additional conditions for the exemption. PTE 84-14 
was developed and granted based on the essential premise that broad 
relief could be afforded for all types of transactions in which a plan 
engages only if the commitments and the investments of plan assets and 
the negotiations leading thereto are the sole responsibility of an 
independent, discretionary, manager.\29\
---------------------------------------------------------------------------

    \27\ 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).
    \28\ An ``investment fund'' includes single customer and pooled 
separate accounts maintained by an insurance company, individual 
trusts and common, collective or group trusts maintained by a bank, 
and any other account or fund to the extent that the disposition of 
its assets (whether or not in the custody of the QPAM) is subject to 
the discretionary authority of the QPAM.
    \29\ See 75 FR 38837, 38839 (July 6, 2010).
---------------------------------------------------------------------------

    16. However, Section I(g) of PTE 84-14 prevents an entity that may 
otherwise meet the definition of ``QPAM'' from utilizing the exemptive 
relief provided by PTE 84-14, for itself and its client plans, if that 
entity or an ``affiliate'' \30\ thereof or any owner, direct or 
indirect, of a 5 percent or more interest in the QPAM has, within 10 
years immediately preceding the transaction, been either convicted or 
released from imprisonment, whichever is later, as a result of certain 
specified criminal activity described in that section.\31\ The 
Department notes that Section I(g) was included in PTE 84-14, in part, 
based on the expectation that a QPAM, and those who may be in a 
position to influence its policies, maintain a high standard of 
integrity.\32\ Accordingly, in the event that NTFS is convicted of the 
crimes alleged in the Referral Order, certain Northern asset managers 
that rely on the relief

[[Page 70574]]

provided by PTE 84-14 (the Northern QPAMs) and with respect to which 
NTFS is a current or future ``affiliate'' (as defined in section VI(d) 
of PTE 84-14), as well as their client ERISA-covered plans and IRAs 
will no longer be able to rely on PTE 84-14 without an additional 
individual exemption issued by the Department.
---------------------------------------------------------------------------

    \30\ Section VI(d) of PTE 84-14 defines the term ``affiliate'' 
for purposes of Section I(g) as ``(1) Any person directly or 
indirectly through one or more intermediaries, controlling, 
controlled by, or under common control with the person, (2) Any 
director of, relative of, or partner in, any such person, (3) Any 
corporation, partnership, trust or unincorporated enterprise of 
which such person is an officer, director, or a 5 percent or more 
partner or owner, and (4) Any employee or officer of the person 
who--(A) Is a highly compensated employee (as defined in Section 
4975(e)(2)(H) of the Code) or officer (earning 10 percent or more of 
the yearly wages of such person), or (B) Has direct or indirect 
authority, responsibility or control regarding the custody, 
management or disposition of plan assets.''
    \31\ For purposes of Section I(g) of PTE 84-14, a person shall 
be deemed to have been ``convicted'' from the date of the judgment 
of the trial court, regardless of whether that judgment stands on 
appeal.
    \32\ See 47 FR 56945, 56947 (December 21, 1982).
---------------------------------------------------------------------------

Northern QPAMs

    17. The investment management businesses that are operated out of 
the Northern QPAMs are separate from NTFS, and from the activities of 
NTFS that are the subject of criminal charges under French law. The 
Northern QPAMs have dedicated systems, management, risk and compliance 
officers. The investment management businesses of the Northern QPAMs 
are subject to codes of conduct, and Northern QPAM personnel engage in 
training, designed to ensure that such businesses understand and abide 
by their fiduciary duties in accordance with applicable law. The codes 
of conduct create information barriers designed to prevent employees of 
the Northern QPAMs from gaining access to inside information that an 
affiliate may have acquired or developed in connection with the 
investment banking, treasury services or other investor services 
business activities. These codes of conduct apply to employees, 
officers and directors of the Northern QPAMs. The Applicant also 
maintains an employee hotline for employees to anonymously express any 
concerns of wrongdoing.

Changes Made by Northern Since Its Acquisition of Baring Trustees 
(Guernsey) Limited

    18. The Applicant represents that all personnel involved in taking 
on the Wildenstein business or that had any dealings with such matters 
at the time of the alleged misconduct have long since left NTFS, either 
before or around the time of the Northern acquisition of Baring 
Trustees (Guernsey) Limited in 2005 or some years before the criminal 
trial started.\33\ Furthermore, the Applicant states that Northern's 
review of the files has not identified any wrongdoing on the part of 
current or former NTFS staff, nor are any current or former NTFS (or 
Baring Trustees (Guernsey) Limited) employees among the six individuals 
charged by the French prosecutors in connection with the Wildenstein 
business.
---------------------------------------------------------------------------

    \33\ The Applicant represents that no NTFS employees (or former 
employees of Baring Trustees (Guernsey) Limited) were investigated 
or charged, nor were any other corporate entities related to NTFS 
investigated or charged. The Applicant states that the individual 
who appears to have been the primary contact for the Wildenstein 
business after NTFS acquired Baring Trustees (Guernsey) Limited was 
Nigel de La Rue (a former employee of Baring Trustees (Guernsey) 
Limited) who is not charged in the French proceeding and who left 
NTFS in January 2006, shortly after the acquisition. Further, the 
Applicant represents that other individuals at Baring Trustees 
(Guernsey) Limited and NTFS assisted in managing the Wildenstein 
accounts, and that all personnel involved in taking on the 
Wildenstein business, or dealing with matters even potentially 
related to the alleged misconduct, have long since left the company, 
many before or around the time of the Northern acquisition of Baring 
Trustees (Guernsey) Limited in 2005. In addition, the Applicant 
represents that others departed NTFS in the years thereafter, before 
the criminal charge was levied. The Applicant confirms that none of 
these persons is employed by NTFS or other Northern affiliates 
today.
---------------------------------------------------------------------------

    19. The Applicant represents that new policies, procedures and 
training came into effect since Northern's acquisition of Baring 
Trustees (Guernsey) Limited in 2005, several years after the events 
that are the subject of the French prosecution occurred. Upon becoming 
a part of the Northern organization, Baring Trustees (Guernsey) Limited 
was renamed NTFS and became subject to Northern's own internal control 
procedures designed to prevent improper activities. The Applicant 
represents that NTFS has complied (and will continue to comply) with 
all applicable legal and regulatory requirements, including but not 
limited to requirements potentially linked to the alleged conduct 
underlying the charges against NTFS.
    The Applicant further represents that resources dedicated to 
maintaining risk and compliance procedures have been enhanced 
significantly since Northern's acquisition of Baring Trustees 
(Guernsey) Limited in 2005. Hundreds of new risk and compliance 
personnel have been hired by Northern in that period. For example, 
according to the Applicant, at the time of the acquisition of Baring 
Trustees (Guernsey) Limited (and the Wildenstein relationship) in 2005, 
Northern had five full-time equivalent employees handling compliance 
with anti-money laundering (``AML'') regulations; as of December 31, 
2015 that number had increased to 78 full-time equivalent employees.
    20. The Applicant represents that it maintains a system of internal 
controls to ensure ongoing compliance with AML and know-your-client 
related regulations. According to the Applicant, one of the key 
controls is the implementation of risk-based, comprehensive customer 
due diligence policies, procedures and processes for all customers, 
particularly those that present a high risk for money laundering or 
terrorist financing. Northern has also adopted Global Minimum Standards 
for Customer Due Diligence for its clients as a critical part of its 
Global AML/Economic Sanctions Compliance Program.
    21. The Applicant represents that it has new systems for evaluating 
new clients or acquisitions. Northern represents that it assesses the 
money laundering and related risks of each new client relationship. 
Northern represents that it has developed a Global Anti-Money 
Laundering & Combating the Financing of Terrorism Risk Rating Policy & 
Methodology to evaluate new client/business relationships and assess 
their money laundering risk and related risks. In addition, Northern 
represents that it utilizes a Client Relationship Form to collect the 
information necessary to assess the client risk rating. Clients will 
initially be risk rated during the client take-on process and 
subsequently as the client profile changes.

Request for Relief

    22. At the time of this proposed temporary exemption, NTFS has not 
been convicted and therefore its conduct has not been determined to be 
criminal. Moreover, NTFS maintains that it engaged in no criminal 
conduct and it is mounting a defense in the French proceeding. 
Nevertheless, the Applicant states that if the Paris Criminal Court 
issues a Conviction of NTFS, the Northern QPAMs will be in violation of 
Section I(g) of PTE 84-14. In the event that the condition in Section 
I(g) of PTE 84-14 is violated, the Northern QPAMs can no longer rely on 
PTE 84-14 without a separate individual prohibited transaction 
exemption. Therefore, the Applicant has requested an exemption to allow 
the Northern QPAMs to continue to use PTE 84-14, notwithstanding such 
Conviction.\34\
---------------------------------------------------------------------------

    \34\ The Department notes that, in the event that NTFS is not 
convicted, the Northern QPAMs may continue to rely on PTE 84-14 
without additional exemptive relief.
---------------------------------------------------------------------------

Statutory Findings--Administratively Feasible

    23. The Applicant states that the proposed exemption is 
administratively feasible because it does not require any monitoring by 
the Department. Furthermore, the exemption's limited effective duration 
provides the Department the opportunity to make its determination 
whether or not long-term exemptive relief is warranted, without causing 
sudden and potentially costly harm to ERISA-covered plans and IRAs.

[[Page 70575]]

Statutory Findings--In the Interests of Affected Plans and IRAs

    24. The Applicant states that an exemption will be in the interest 
of the affected ERISA-covered plans and IRAs and their participants and 
beneficiaries. According to the Applicant, there are numerous 
transactions entered into by Northern QPAMs on behalf of their ERISA-
covered plan and IRA clients that require the Northern QPAMs to meet 
the conditions in PTE 84-14. According to Northern, these include 
contracts entered into by Northern QPAMs on behalf of or as investment 
adviser for ERISA-covered plans, collective trusts and other funds 
subject to ERISA for certain outstanding transactions, including, but 
not limited to: the purchase and sale of debt and equity securities, 
and asset-backed securities; the purchase and sale of commodities; real 
estate financing and leasing arrangements; and certain derivative 
transactions such as swaps and forwards.
    25. The Applicant states that, in the event that the Northern QPAMs 
can no longer rely on PTE 84-14, counterparties to the above 
transactions could seek to terminate their contracts, resulting in 
significant losses to their ERISA-covered plan clients. Furthermore, 
according to Northern, in the event the Applicant no longer qualifies 
for relief under the PTE 84-14, many derivatives transactions and other 
contractual agreements automatically and immediately could be 
terminated without notice or action.
    26. The Applicant states that, without an exemption to continue to 
rely on PTE 84-14, ERISA-covered plan and IRA clients of Northern QPAMs 
may be required to seek other investment managers, at significant 
disruption and cost. Northern states that the process of transitioning 
to a new manager typically is lengthy, and likely would involve 
numerous steps each of which could last several months--including 
retaining a consultant, engaging in the request for proposals, 
negotiating contracts, and ultimately transitioning assets, as well as 
the transaction-related expenses incurred in connection with the 
purchase of securities.
    27. Furthermore, the Applicant states, many of the investments of 
ERISA-covered plan and IRA clients managed by Northern QPAMs could be 
difficult to transition to a new investment manager, and the transition 
of certain strategies, such as transitioning from a stable value fund, 
could create significant disruption for 40l(k) plans. The Applicant 
maintains that Northern QPAMs' inability to rely upon PTE 84-14 could 
result in significant, unplanned redemptions from pooled funds, which 
would in turn frustrate the QPAMs' efforts to effectively manage the 
pooled funds' assets and harm remaining plan investors by increasing 
the expense ratios of the investment funds.
    28. The Applicant believes that, depending on the strategy, the 
cost of liquidating assets in connection with transitioning clients to 
another manager could be significant. Furthermore, transaction costs 
may be higher in times of significant market volatility, especially 
with respect to certain strategies.
    29. Costs of Liquidating Fixed Income. According to the Applicant, 
if Northern QPAMs could no longer rely on PTE 84-14, a typical ERISA-
covered plan or IRA client of the Northern QPAMs could suffer different 
liquidation costs depending on the strategy employed within fixed 
income. For example, investment grade bonds and emerging market 
sovereign debt could be liquidated for a cost of between 25-50 basis 
points, not including reinvestment costs. Leveraged finance and 
emerging market corporate debt may be more difficult to liquidate and 
costs may range from 50-150 basis points, not including reinvestment 
costs. The costs of liquidating convertible bonds could be between 50-
75 basis points, and costs of liquidating multi-asset credit could be 
between 35-100 basis points, not including reinvestment costs.

Statutory Findings--Protective of the Rights of Participants of 
Affected Plans and IRAs

    30. The Applicant proposed certain conditions it believes are 
protective of the rights of participants and beneficiaries of ERISA-
covered plans and IRAs with respect to the covered transactions 
described herein. The Department has determined to revise certain of 
those conditions, and to add certain new conditions, in order to make 
its required finding that the requested exemption is protective of the 
rights of participants and beneficiaries of affected plans and IRAs. In 
this regard, the Department has tentatively determined that the 
following conditions adequately protect the rights of participants and 
beneficiaries of affected plans and IRAs with respect to the 
transactions that would be covered by this temporary exemption, if 
granted.
    31. Several of these conditions highlight the Department's 
expectation that the affected Northern QPAMs were not involved in the 
misconduct by NTFS that is the subject of the Conviction.\35\ For 
example, relief under this proposed exemption is only available to the 
extent: (1) Northern QPAMs, including their officers, directors, agents 
other than Northern, and employees, did not know of, have reason to 
know of, or participate in the criminal conduct of NTFS that is the 
subject of the Conviction (for purposes of this requirement, 
``participated in'' includes the knowing or tacit approval of the 
misconduct underlying the Conviction); (2) any failure of those QPAMs 
to satisfy Section I(g) of PTE 84-14 arose solely from the Conviction; 
and (3) the Northern QPAMs (including their officers, directors, agents 
other than Northern, and employees of such Northern QPAMs) did not 
receive direct compensation, or knowingly receive indirect 
compensation, in connection with the criminal conduct that is the 
subject of the Conviction.
---------------------------------------------------------------------------

    \35\ The Department notes that, at the time of publication of 
this proposed temporary exemption, NTFS has not been convicted. In 
the event that NTFS is not convicted, the Northern QPAMs may 
continue to rely on PTE 84-14 without additional exemptive relief.
---------------------------------------------------------------------------

    32. The Department expects the Northern QPAMs to rigorously ensure 
that the individuals associated with the criminal conduct of NTFS will 
not be employed or knowingly engaged by such QPAMs. In this regard, the 
temporary exemption, if granted as proposed, mandates that the Northern 
QPAMs will not employ or knowingly engage any of the individuals that 
participated in criminal conduct that is the subject of the Conviction. 
For purposes of this requirement, ``participated in'' includes the 
knowing or tacit approval of the misconduct underlying the Conviction. 
Further, the Northern 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 or the Code and managed by such Northern 
QPAM, to enter into any transaction with NTFS or engage NTFS to provide 
any service to such investment fund, for a direct or indirect fee borne 
by such investment fund, regardless of whether such transaction or 
service may otherwise be within the scope of relief provided by an 
administrative or statutory exemption.
    33. The Northern QPAMs must comply with each condition of PTE 84-
14, as amended, with the sole exceptions of the violation of Section 
I(g) of PTE 84-14 that is attributable to the Conviction. Further, any 
failure of the Northern QPAMs to satisfy Section I(g) of PTE 84-14 
arose solely from the Conviction.

[[Page 70576]]

    34. No relief will be provided by the temporary exemption, if 
granted, to the extent that any entities holding assets that constitute 
the assets of an ERISA-covered plan or IRA were involved in the 
criminal conduct that is the subject of the Conviction. Further, no 
relief will be provided to the extent NTFS provides any discretionary 
asset management services to ERISA-covered plans or IRAs, or otherwise 
acts as a fiduciary with respect to ERISA-covered plan and IRA assets.
    35. The Department believes that robust policies and training are 
warranted where, as here, alleged criminal misconduct has occurred 
within a corporate organization that is affiliated with one or more 
QPAMs managing plan investments in reliance on PTE 84-14. Therefore, 
this proposed temporary exemption, if granted, requires that each 
Northern QPAM must immediately develop, implement, maintain, and follow 
written policies (the Policies) requiring and reasonably designed to 
ensure that: The asset management decisions of the Northern QPAM are 
conducted independently of the management and business activities of 
Northern, including NTFS and any non-asset management activities of 
Northern; the Northern QPAM fully complies with ERISA's fiduciary 
duties and with 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 
Northern QPAM does not knowingly participate in any other person's 
violation of ERISA or the Code with respect to ERISA-covered plans and 
IRAs; any filings or statements made by the Northern 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; the Northern 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; and the 
Northern QPAM complies with the terms of this temporary exemption, if 
granted. Any violation of, or failure to comply with these items is 
corrected promptly upon discovery, and any such violation or compliance 
failure not promptly corrected is reported, upon discovering the 
failure to promptly correct, in writing, to appropriate corporate 
officers, the head of compliance and the General Counsel (or their 
functional equivalent) of the relevant Northern QPAM, and an 
appropriate fiduciary of any affected ERISA-covered plan or IRA where 
such fiduciary is independent of Northern.
    36. The Department has also imposed a condition that requires each 
Northern QPAM to immediately develop and implement a program of 
training (the Training), for all relevant Northern QPAM asset/portfolio 
management, trading, legal, compliance, and internal audit personnel. 
The Training must 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), ethical conduct, the 
consequences of not complying with the conditions of this temporary 
exemption, if granted (including any loss of exemptive relief provided 
herein), and prompt reporting of wrongdoing.
    37. This temporary exemption, if granted, requires Northern QPAMs 
to enter into certain contractual obligations in connection with the 
provision of services to their clients. It is the Department's view 
that the condition for exemptive relief requiring these contractual 
obligations is essential to the Department's ability to make its 
findings that the proposed temporary exemption is protective of the 
rights of the participants and beneficiaries of ERISA-covered and IRA 
plan clients of Northern QPAMs under section 408(a) of ERISA. In this 
regard, Section I(i) of the proposed temporary exemption provides that, 
as of the effective date of this temporary exemption, if granted, with 
respect to any arrangement, agreement, or contract between a Northern 
QPAM and an ERISA-covered plan or IRA for which a Northern QPAM 
provides asset management or other discretionary fiduciary services, 
each Northern QPAM must agree: 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 
(and to promptly correct any inadvertent prohibited transactions), and 
to comply with the standards of prudence and loyalty set forth in 
section 404 of ERISA with respect to each such ERISA-covered plan and 
IRA; to indemnify and hold harmless the ERISA-covered plan or IRA for 
any damages resulting from a violation of applicable laws, a breach of 
contract, or any claim arising out of the failure of such Northern QPAM 
to qualify for the exemptive relief provided by PTE 84-14 as a result 
of a violation of Section I(g) of PTE 84-14 other than the Conviction; 
not to require (or otherwise cause) the ERISA-covered plan or IRA to 
waive, limit, or qualify the liability of the Northern QPAM for 
violating ERISA or the Code or engaging in prohibited transactions; 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 Northern 
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 Northern; not to 
restrict the ability of such ERISA-covered plan or IRA to terminate or 
withdraw from its arrangement with the Northern QPAM (including any 
investment in a separately managed account or pooled fund subject to 
ERISA and managed by such 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 as a result of an actual lack of 
liquidity of the underlying assets, provided that such restrictions are 
applied consistently and in like manner to all such investors; and 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. 
Furthermore, any contract, agreement or arrangement between a Northern 
QPAM and its ERISA-covered plan or IRA client must not contain 
exculpatory provisions disclaiming or otherwise limiting liability of 
the Northern QPAM for a violation of such agreement's terms.
    38. Within six (6) months of the date of publication of a notice of 
temporary exemption in the Federal Register, if granted, each Northern 
QPAM will: Provide a notice of its obligations under Section I(i) to 
each ERISA-covered plan and IRA for which the Northern QPAM

[[Page 70577]]

provides asset management or other discretionary fiduciary services; 
and Separately warrant in writing to each such ERISA-covered plan and 
IRA its obligations under subparagraph (1) of Section I(i).
    39. Each Northern QPAM must maintain records necessary to 
demonstrate that the conditions of this temporary exemption, if 
granted, have been met for six (6) years following the date of any 
transaction for which such Northern QPAM relies upon the relief in the 
temporary exemption.
    40. Furthermore, the proposed temporary exemption mandates that, 
during the effective period of this temporary exemption, if granted, 
neither NTFS nor any affiliate enters into a Deferred Prosecution 
Agreement (a DPA) or a Non-Prosecution Agreement (an NPA) with the 
Department of Justice, in connection with conduct described in section 
I(g) of PTE 84-14 or section 411 of ERISA. The Applicant represents 
that, to the best of its knowledge, Northern has not, within the past 
13 years, been convicted of any crime described in section 411 of 
ERISA, nor has it been under investigation for any such crime. 
Furthermore, the Applicant represents that Northern currently does not 
have a reasonable basis to believe that there are any pending criminal 
investigations involving Northern or any of its affiliated companies 
that would cause a reasonable plan or IRA customer not to hire or 
retain the institution as a QPAM.

Summary

    41. Given the revised and new conditions described above, the 
Department has tentatively determined that the relief sought by the 
Applicants satisfies the statutory requirements for an exemption under 
section 408(a) of ERISA.

Notice to Interested Persons

    Written comments and requests for a public hearing on the proposed 
temporary exemption should be submitted to the Department within seven 
(7) days from the date of publication of this Federal Register Notice. 
Given the short comment period, the Department will consider comments 
received after such date, in connection with its consideration of more 
permanent relief.
    Warning: Do not include any personally identifiable information 
(such as name, address, or other contact information) or confidential 
business information that you do not want publicly disclosed. All 
comments may be posted on the Internet and can be retrieved by most 
Internet search engines.

FOR FURTHER INFORMATION CONTACT: Ms. Anna Mpras Vaughan of the 
Department, telephone (202) 693-8565. (This is not a toll-free number.)

Proposed Extension of PTE 2015-15 Involving Deutsche Bank AG (Deutsche 
Bank), Located in Frankfurt, Germany

[Exemption Application No. D-11879]

Proposed Exemption

    The Department is considering granting an exemption under the 
authority of section 408(a) of the Employee Retirement Income Security 
Act of 1974, as amended (ERISA or the Act) and section 4975(c)(2) of 
the Internal Revenue Code of 1986, as amended (the Code) and in 
accordance with the procedures set forth in 29 CFR part 2570, subpart B 
(76 FR 66637, 66644, October 27, 2011).\36\
---------------------------------------------------------------------------

    \36\ For purposes of this proposed exemption, references to the 
provisions of Title I of the Act, unless otherwise specified, refer 
also to the corresponding provisions of the Code.
---------------------------------------------------------------------------

Section I: Covered Transactions
    If the Proposed Extension is granted, certain asset managers with 
specified relationships to Deutsche Bank (hereinafter, the DB QPAMs, as 
further defined in Section II(b)) shall not be precluded from relying 
on the exemptive relief provided by Prohibited Transaction Exemption 
(PTE) 84-14,\37\ notwithstanding a judgment of conviction against 
Deutsche Securities Korea Co., a South Korean affiliate of Deutsche 
Bank (hereinafter, DSK, as further defined in Section II(c)), entered 
on January 25, 2016 (the Korean Conviction, as further defined in 
Section II(a)),\38\ provided that the following conditions are 
satisfied:
---------------------------------------------------------------------------

    \37\ 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).
    \38\ Section I(g) of PTE 84-14 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) The DB QPAMs (including their officers, directors, agents other 
than Deutsche Bank, and employees of such DB QPAMs) did not know of, 
have reason to know of, or participate in the criminal conduct of DSK 
that is the subject of the Korean Conviction;
    (b) Any failure of the DB QPAMs to satisfy Section I(g) of PTE 84-
14 arose solely from the Korean Conviction;
    (c) The DB QPAMs (including their officers, directors, agents other 
than Deutsche Bank, and employees of such DB QPAMs) did not receive 
direct compensation, or knowingly receive indirect compensation, in 
connection with the criminal conduct that is the subject of the 
Conviction;
    (d) A DB 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 DB QPAM to enter into any 
transaction with DSK or engage DSK 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;
    (e)(1) Each DB QPAM maintains and follows written policies (the 
Policies) requiring and reasonably designed to ensure that: (i) The 
asset management decisions of the DB QPAM are conducted independently 
of Deutsche Bank's management and business activities; (ii) the DB 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 DB 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 DB 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 DB QPAM's knowledge at that time; (v) the DB 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 DB QPAM complies with the terms of this exemption, if 
granted; 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

[[Page 70578]]

of Compliance and the General Counsel of the relevant DB QPAM (or their 
functional equivalent), the independent auditor responsible for 
reviewing compliance with the Policies, and an appropriate fiduciary of 
any affected ERISA-covered plan or IRA that is independent of Deutsche 
Bank; 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 
Deutsche Bank or beneficially owned by an employee of Deutsche Bank or 
its affiliates, such fiduciary does not need to be independent of 
Deutsche Bank. DB 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 DB QPAM maintains and follows a program of training (the 
Training), conducted during the effective period of this exemption, if 
granted, for relevant DB QPAM asset management, legal, compliance, and 
internal audit personnel; the Training must 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 Proposed Extension, (including 
the loss of the exemptive relief provided therein), and prompt 
reporting of wrongdoing;
    (f)(1) Each DB QPAM submits to an audit conducted by an independent 
auditor, who has been prudently selected and who has appropriate 
technical training and proficiency with ERISA and the Code to evaluate 
the adequacy of, and compliance with, the Policies and Training 
described herein; the audit requirement must be incorporated in the 
Policies. The audit must cover the period of time during which this 
Proposed Extension, if granted, is effective, and must be completed no 
later than three (3) 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, and as permitted by law, each DB QPAM and, if 
applicable, Deutsche Bank, 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 must specifically require the auditor 
to determine whether each DB QPAM has developed, implemented, 
maintained, and followed Policies in accordance with the conditions of 
this Proposed Extension, if granted, and developed and implemented the 
Training, as required herein;
    (4) The auditor's engagement shall specifically require the auditor 
to test each DB QPAM's operational compliance with the Policies and 
Training. In this regard, the auditor must test a sample of the QPAM's 
transactions involving ERIXA-covered plans and IRAs sufficient in size 
and nature to afford the auditor a reasonable basis to determine the 
operational compliance with the Policies and Training;
    (5) On or before the end of the period described in Section I(f)(1) 
for completing the audit, the auditor must issue a written report (the 
Audit Report) to Deutsche Bank and the DB QPAM to which the audit 
applies that describes the procedures performed by the auditor during 
the course of its examination. The Audit Report must 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 DB QPAM's 
noncompliance with the written Policies and Training described in 
paragraph (e) 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 DB QPAM must be promptly addressed by such 
DB QPAM, and any actions taken by such DB QPAM to address such 
recommendations must be included in an addendum to the Audit Report. 
Any determinations by the auditor that the respective DB QPAM has 
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 DB 
QPAM has complied with the requirements under this subsection must be 
based on evidence that demonstrates the DB QPAM has actually maintained 
and followed the Policies and Training required by this Proposed 
Extension, if granted, and not solely on a lack of evidence that the DB 
QPAM has violated ERISA;
    (6) The auditor shall notify the respective DB 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 DB QPAM to which the 
Audit Report applies certifies in writing, under penalty of perjury, 
that the officer has reviewed the Audit Report and this Proposed 
Extension, if granted; addressed, corrected, or remedied 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 Proposed Extension and 
with the applicable provisions of ERISA and the Code;
    (8) An executive officer of Deutsche Bank reviews the Audit Report 
for each DB QPAM and certifies in writing, under penalty of perjury, 
that such officer has reviewed each Audit Report;
    (9) Each DB 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 DB 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 DB QPAM;
    (10) Each DB QPAM and the auditor will submit to OED (A) any 
engagement agreement(s) entered into pursuant to the engagement of the 
auditor under this Proposed Extension, 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 
Proposed Extension, no later than three (3) months after the date of 
the Korean 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 DB QPAM, and an 
explanation of any corrective or remedial actions taken by the 
applicable DB QPAM; and

[[Page 70579]]

    (12) Deutsche Bank 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 Deutsche Bank demonstrates to the Department's satisfaction that 
such new auditor is independent of Deutsche Bank, experienced in the 
matters that are the subject of the Proposed Extension, and capable of 
making the determinations required of this Proposed Extension.
    Notwithstanding the above, this audit requirement will be deemed 
met to the extent the Department issues more permanent relief that 
expressly revises this paragraph (f), and the terms of such new audit 
requirement have been met;
    (g) With respect to each ERISA-covered plan or IRA for which a DB 
QPAM provides asset management or other discretionary fiduciary 
services, each DB 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 DB 
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 DB 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 Deutsche 
Bank; (4) not to restrict the ability of such ERISA-covered plan or IRA 
to terminate or withdraw from its arrangement with the DB 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 two (2) months of the date of 
publication of a notice of exemption in the Federal Register, if 
granted, each DB QPAM will provide a notice to such effect to each 
ERISA-covered plan or IRA for which a DB QPAM provides asset management 
or other discretionary fiduciary services, unless such notice was 
previously provided consistent with PTE 2015-15;
    (h) Each DB QPAM will maintain records necessary to demonstrate 
that the conditions of this Proposed Extension, if granted, have been 
met, for six (6) years following the date of any transaction for which 
such DB QPAM relies upon the relief in the Proposed Extension;
    (i) The DB 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 Korean Conviction;
    (j) The DB QPAMs will not employ any of the individuals that 
engaged in the spot/futures-linked market manipulation activities that 
led to the Korean Conviction;
    (k) Deutsche Bank disgorged all of its profits generated by the 
spot/futures-linked market manipulation activities of DSK personnel 
that led to the Korean Conviction;
    (l) Deutsche Bank imposes internal procedures, controls, and 
protocols on DSK designed to reduce the likelihood of any recurrence of 
the conduct that is the subject of the Korean Conviction, to the extent 
permitted by local law;
    (m) DSK has not, and will not, provide fiduciary or QPAM services 
to ERISA-covered Plans or IRAs, and will not otherwise exercise 
discretionary control over plan assets;
    (n) No DB QPAM is a subsidiary of DSK, and DSK is not a subsidiary 
of any DB QPAM;
    (o) The criminal conduct of DSK that is the subject of the Korean 
Conviction did not directly or indirectly involve the assets of any 
plan subject to Part 4 of Title I of ERISA or section 4975 of the Code; 
and
    (p) A DB QPAM will not fail to meet the terms of this Proposed 
Extension solely because a different DB QPAM fails to satisfy the 
conditions for relief under this Proposed Extension described in 
Sections I(d), (e), (f), (g), (h), (i) and (j).
Section II: Definitions
    (a) The term ``Korean Conviction'' means the judgment of conviction 
against DSK entered on January 25, 2016, in Seoul Central District 
Court, relating to charges filed against DSK under Articles 176, 443, 
and 448 of South Korea's Financial Investment Services and Capital 
Markets Act for spot/futures-linked market price manipulation;
    (b) The term ``DB QPAM'' means a ``qualified professional asset 
manager'' (as defined in section VI(a) \39\ of PTE 84-14) that relies 
on the relief provided by PTE 84-14 and with respect to which DSK is a 
current or future ``affiliate'' (as defined in section VI(d) of PTE 84-
14). For purposes of this Proposed Extension, if granted, Deutsche Bank 
Securities, Inc. (DBSI), including all entities over which it exercises 
control; and Deutsche Bank AG, including all of its branches, are 
excluded from the definition of a DB QPAM; and
---------------------------------------------------------------------------

    \39\ 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.
---------------------------------------------------------------------------

    (c) The term ``DSK'' means Deutsche Securities Korea Co., a South 
Korean ``affiliate'' of Deutsche Bank (as the term ``affiliate'' is 
defined in section VI(c) of PTE 84-14).
    Effective Date: If granted, this Proposed Extension will be 
effective for the period beginning October 24, 2016 and ending on the 
earlier of: April 23, 2017 or the effective date of a final agency 
action made by the Department in connection with Exemption Application 
No. D-11856.\40\
---------------------------------------------------------------------------

    \40\ In this regard, as noted below, the Applicant has requested 
substantially similar relief to the relief described herein, but on 
a more permanent basis.
---------------------------------------------------------------------------

Summary of Facts and Representations

Background

    1. On October 11, 2011, Deutsche Bank AG (Deutsche Bank) submitted 
Exemption Application No. D-11696 (the First Request), to allow certain 
asset managers with specified relationships to Deutsche Bank (the DB 
QPAMs) to continue to utilize the relief set forth in Prohibited 
Transaction Exemption (PTE) 84-14,\41\ notwithstanding the failure of 
those entities to meet the requirement set forth in Section I(g) of PTE 
84-14 as a result of the pending conviction in Seoul Central District 
Court (the Korean Court), against Deutsche Securities Korea Co. (DSK) 
for spot/futures-linked market price manipulation (the Korean 
Conviction).\42\ While the Department

[[Page 70580]]

was considering the First Request, Deutsche Investment Management 
Americas Inc. (DIMA) and the current and future asset management 
affiliates of Deutsche Bank, submitted Exemption Application No. D-
11856 (the Second Request) to allow the DB QPAMs to continue to rely on 
PTE 84-14 for a period of ten years, notwithstanding both the Korean 
Conviction and the anticipated criminal conviction of a Deutsche Bank 
affiliate, DB Group Services UK Limited, for one count of wire fraud in 
connection with its alleged role in manipulating LIBOR.
---------------------------------------------------------------------------

    \41\ 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).
    \42\ 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.
---------------------------------------------------------------------------

    2. In a letter dated July 16, 2015, the Department informed DIMA 
and Deutsche Bank that it was tentatively denying the Second Request, 
upon tentatively determining that the requested exemption was not in 
the interest of affected plans and IRAs, and not protective of those 
plans and IRAs. The Department held a Tentative Denial conference with 
representatives of Deutsche Bank on November 9, 2015 and has since 
requested and received additional information in respect of the Second 
Request.
    3. Although the Department tentatively denied the Second Request, 
the First Request, which requested an exemption from Section I(g) of 
PTE 84-14 in connection with only the Korean Conviction, was still 
pending with the Department. When the Korean Conviction appeared 
imminent, the Department published a proposed temporary exemption (the 
First Proposal) in the Federal Register at 80 FR 51314. As noted in the 
preamble to the proposed exemption, affected plans and IRAs may have 
incurred substantial harm absent such relief; DB QPAMs were not aware 
of, and did not participate in, the conduct that gave rise to the 
Korean Conviction; and the conditions set forth in the exemption 
represented significant enhancements for plans and IRAs with assets 
managed by certain DB QPAMs.
    The Department finalized the First Proposal on September 4, 2015, 
with an effective period of nine months following the Korean Conviction 
(PTE 2015-15, 80 FR 53574).\43\ The Korean Conviction was entered by 
the Korean Court on January 25, 2016. As such, PTE 2015-15 is effective 
from January 25, 2016 until October 24, 2016.
---------------------------------------------------------------------------

    \43\ For a more complete statement of the facts and 
representations concerning Deutsche Bank, DSK, and the circumstances 
surrounding the Korean Conviction, refer to the First Proposal.
---------------------------------------------------------------------------

    4. The Department now proposes to temporarily extend the relief 
(the Proposed Extension) provided in PTE 2015-15 from October 24, 2016 
until the earlier of April 23, 2017, or the effective date of an 
exemption that is granted in respect of Exemption Application No. D-
11856, if any. The Proposed Extension, if granted, will enable the 
Department to accommodate a more complete review of the voluminous 
records submitted in connection with the Second Request and consider 
whether or not a longer term exemption is appropriate.

Statutory Findings

    5. The Department is proposing this extension based on the same 
findings the Department made regarding PTE 2015-15. In this regard, the 
Department has tentatively determined that limited exemptive relief is 
in the interest of ERISA-covered plans and IRAs managed by the DB 
QPAMs. The Department is concerned that, absent such relief, plans and 
IRAs would incur costs in: Searching for new managers; issuing requests 
for proposals; conducting due diligence (including meetings with 
potential managers and credit analysts); seeking investment committee 
approvals and negotiating; and/or drafting new investment management 
agreements, investment guidelines and related trading documentation 
with broker-dealers and other counterparties. Deutsche Bank has 
suggested that the selection of new managers could potentially take 
several months or longer, resulting in a number of collateral costs 
including the opportunity costs of missed investments, lower returns 
from investing in cash pending long term reinvestment, fewer trading 
counterparties and more limited or costly temporary investment 
alternatives.
    The Department is also taking into consideration Deutsche Bank's 
prior representations that: ERISA-covered plans and IRAs would incur 
direct transaction costs in liquidating and reinvesting their 
portfolios, ranging from 2.5 to 25 basis points (excluding core real 
estate), resulting in approximately $5 to $7 million in expenses; and 
liquidating certain direct real estate portfolios may result in 
portfolio discounts of 10-20% of gross asset value, along with 30 to 
100 basis points in direct transaction costs, resulting in an estimated 
total cost to plan investors of between $281 million and $723 million, 
depending on the liquidation period.
    6. The Department has tentatively determined that this Proposed 
Extension is sufficient to protect affected plans and IRAs in light of 
the conditions herein and the temporary nature of this extension, if 
granted. The conditions described herein are essentially the same 
conditions set forth in PTE 2015-15. For example, each DB QPAM must 
continue to maintain and follow the robust written policies (the 
Policies) and training requirements (the Training) developed under PTE 
2015-15. The Policies, which are described in more detail in the 
operative language of the Proposed Extension below, are generally 
designed to, among other things: Ensure the independence of the DB 
QPAMs from Deutsche Bank and its other affiliates such as DSK; require 
the strict legal compliance of the DB QPAMs with ERISA, the Code and 
the prohibited transaction rules; ensure truthfulness and transparency 
with respect to statements made by DB QPAMs to regulators; and ensure 
compliance with the terms of this exemption, if granted. The Training, 
which is also described in more detail in the operative language of the 
Proposed Extension below, is designed to cover the Policies, ERISA and 
Code compliance, ethical conduct, the consequences for not complying 
with the conditions of this Proposed Extension, and prompt reporting of 
wrongdoing.
    In order to verify the DB QPAMs' compliance with the Policies and 
Training requirements of the Proposed Extension, and the conditions for 
relief, each DB QPAM must submit to an audit conducted by an 
independent auditor, prudently selected, who has appropriate technical 
training and proficiency with ERISA to evaluate the adequacy of, and 
compliance with, the Policies and Training, and the conditions for 
relief described herein. Furthermore, 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 DB QPAM and, if 
applicable, Deutsche Bank, must 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 auditor's engagement shall specifically 
require the auditor to determine whether each DB QPAM has developed, 
implemented, maintained, and followed Policies in accordance with the 
conditions of this Proposed Extension, if granted, and developed and 
implemented the Training, as required herein, and it shall specifically 
require

[[Page 70581]]

the auditor to test each DB QPAM's operational compliance with the 
Policies and Training.
    Furthermore, the auditor must issue a written report (the Audit 
Report) to Deutsche Bank and the DB QPAM to which the audit applies 
that describes the procedures performed by the auditor during the 
course of its examination. The Audit Report must 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 DB QPAM's noncompliance with the written 
Policies and Training described above. Furthermore, any determination 
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 DB QPAM must be promptly 
addressed by such DB QPAM, and any actions taken by such DB QPAM to 
address such recommendations must be included in an addendum to the 
Audit Report. The auditor is required to notify the respective DB QPAM 
of any instances of noncompliance identified by the auditor. The 
General Counsel or one of the three most senior executive officers of 
the DB QPAM to which the Audit Report applies must certify in writing, 
under penalty of perjury, that the officer has reviewed the Audit 
Report and, if granted, this Proposed Extension; addressed, corrected, 
or remedied 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 the 
Proposed Extension and with the applicable provisions of ERISA and the 
Code. Moreover, an executive officer of Deutsche Bank must review the 
Audit Report for each DB QPAM and certify in writing, under penalty of 
perjury, that such officer has reviewed each Audit Report.
    The audit must: Span the period of time covered by this Proposed 
Extension, if granted; be completed within three months days from the 
end of the period to which it relates; and be submitted to the 
Department within 30 days from date the audit is completed. These 
requirements may be enhanced or changed if subsequent exemptive relief 
is granted. The DB QPAMs must give the Department copies of the 
auditor's workpapers upon request. In addition, Deutsche Bank must 
notify the Department at least 30 days prior to any substitution of the 
auditor, and must demonstrate to the Department's satisfaction that the 
replacement auditor is independent of Deutsche Bank, experienced in the 
matters that are the subject of the Proposed Extension, and capable of 
making the determinations required of this Proposed Extension.
    Under the terms of the Proposed Extension, if granted, the DB QPAMs 
must agree to certain terms and undertakings with each ERISA-covered 
plan or IRA for which a DB QPAM provides asset management or other 
discretionary fiduciary services, including, generally: (1) Compliance 
with ERISA and the Code and avoidance of non-exempt prohibited 
transactions; (2) not to waive, limit, or qualify certain liabilities 
of the DB QPAM; (3) not to require indemnification of the DB QPAM for 
violating ERISA or engaging in prohibited transactions; and (4) with 
minor exceptions, not to restrict the ability of ERISA-covered plan or 
IRA clients to terminate or withdraw from their arrangement with the DB 
QPAM or, to impose any fees, penalties, or charges for such termination 
or withdrawal. Each DB QPAM will provide a notice describing the above-
described terms and undertakings to each such ERISA-covered plan or IRA 
within two (2) months of the date of publication of a notice of 
extension in the Federal Register, if granted, unless such notice was 
previously provided consistent with PTE 2015-15.
    Under the terms of this Proposed Extension, each DB QPAM must: 
Maintain records necessary to demonstrate that the conditions herein 
have been met, for six (6) years following the date of any transaction 
for which such DB QPAM relies upon the relief in the Proposed 
Extension, if granted; 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 Korean Conviction; ensure that none of the 
individuals that engaged in the conduct that led to the Korean 
Conviction are employed by the DB QPAM; and provide a notice of the 
Proposed Extension, and if granted, a notice of final extension of PTE 
2015-15, along with a separate summary (which has been submitted to the 
Department) describing the facts that led to the Korean Conviction, and 
a prominently displayed statement that the Korean Conviction results in 
a failure to meet a condition in PTE 84-14 to each sponsor of an ERISA-
covered plan and each beneficial owner of an IRA invested in an 
investment fund managed by a DB QPAM, or the sponsor of an investment 
fund in any case where a DB QPAM acts only as a sub-advisor to the 
investment fund.
    Lastly, regarding the DB QPAMs, relief under this Proposed 
Extension, if granted, is only available to the extent the QPAMs 
covered by this Proposed Extension, as defined in Section II of this 
Extension, including their officers, directors, agents other than 
Deutsche Bank, and employees, did not know of, have reason to know of, 
or participate in the criminal conduct of DSK that is the subject of 
the Korean Conviction; any failure of those QPAMs to satisfy Section 
I(g) of PTE 84-14 arose solely from the Korean Conviction; such QPAMs 
did not directly receive compensation, or knowingly receive indirect 
compensation, in connection with, the criminal conduct that is the 
subject of the Korean Conviction; and none of those QPAMs will 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 DB QPAM to enter into any transaction with DSK, or engage DSK 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.
    Regarding conditions herein directed at Deutsche Bank, prior to 
engaging in a transaction covered by this Proposed Extension, if 
granted, Deutsche Bank must have previously disgorged all of its 
profits generated from exercising derivative positions and put options 
in connection with the activity associated with the Korean Conviction. 
Deutsche Bank must have also previously imposed internal procedures, 
controls, and protocols on DSK designed to reduce the likelihood of any 
recurrence of the conduct that is the subject of the Korean Conviction, 
to the extent permitted by local law.
    Regarding conditions herein aimed at DSK, DSK may not provide 
fiduciary services to ERISA-covered Plans or IRAs, or otherwise 
exercise discretionary control over plan assets. Further, none of the 
DB QPAMs may be subsidiaries of DSK, and DSK may not be a subsidiary of 
any of the DB QPAMs. Finally, the criminal conduct of DSK that is the 
subject of the Korean Conviction must not have directly or indirectly 
involved the assets of any plan subject to Part 4 of Title I of ERISA 
or section 4975 of the Code.
    The Proposed Extension, if granted, will not apply to Deutsche Bank

[[Page 70582]]

Securities, Inc. (DBSI).\44\ Section I(a) of PTE 2015-15, as well as 
this Proposed Extension, requires that ``DB QPAMs (including their 
officers, directors, agents other than Deutsche Bank, and employees of 
such DB QPAMs) did not know of, have reason to know of, or participate 
in the criminal conduct of DSK that is the subject of the Conviction.'' 
In a letter to the Department dated July 15, 2016, Deutsche Bank raised 
the possibility that an individual,\45\ while employed at DBSI, may 
have known or had reason to know of the criminal conduct of DSK that is 
the subject of the Korean Conviction. In a letter to the Department 
dated August 19, 2016, Deutsche Bank further clarified that ``there is 
no evidence that anyone at DBSI other than Mr. Ripley knew in advance 
of the trades conducted by the Absolute Strategy Group on November 11, 
2010.'' Deutsche Bank states that it had previously interpreted Section 
I(a) of PTE 2015-15 as requiring only that ``any current director, 
officer or employee did not know of, have reason to know of, or 
participate in the conduct.'' The Department notes that Deutsche Bank 
did not raise any interpretive questions regarding Section I(a) of PTE 
2015-15, or express any concerns regarding DBSI's possible 
noncompliance, during the comment period for PTE 2015-15. Nor did 
Deutsche Bank seek a technical correction or other remedy to address 
such concerns between the time that PTE 2015-15 was granted and the 
date of the Korean Conviction. The Department notes that a period of 
approximately nine months passed before Deutsche Bank raised an 
interpretive question regarding Section I(a) of PTE 2015-15. 
Accordingly, the Department is excluding DBSI from the relief described 
in this Proposed Extension.
---------------------------------------------------------------------------

    \44\ The Applicant represents that DBSI has not relied on the 
relief provided by PTE 84-14 since the date of the Korean 
Conviction.
    \45\ The Applicant identifies the individual as Mr. John Ripley, 
a senior global manager in DBSI who was based in the United States 
and who was a functional supervisor over the employees of DSK that 
were prosecuted for market manipulation. Furthermore, the Applicant 
states that Mr. Ripley was terminated by DBSI for ``loss of 
confidence'' in that he could have exercised more care and been more 
proactive in reviewing the trades at issue.
---------------------------------------------------------------------------

    The Proposed Extension, if granted, will also not apply with 
respect to Deutsche Bank AG (the parent entity) or any of its branches. 
The Applicant represents that neither Deutsche Bank AG nor its branches 
have relied on the relief provided by PTE 84-14 since the date of the 
Korean Conviction.
    7. The Department has tentatively determined that the Proposed 
Extension is administratively feasible. In this regard, this Proposed 
Extension, if granted, would not require the Department's oversight 
because DSK does not provide any fiduciary or QPAM services to ERISA-
covered plans and IRAs and that no ERISA or IRA assets were involved in 
the Korean Conviction. Furthermore, compliance with the terms of the 
Proposed Extension and of PTE 2015-15 will be validated through an 
audit performed by a qualified, independent auditor.
    8. The proposed exemption, if granted, would provide relief from 
certain of the restrictions set forth in Section 406 and 407 of ERISA. 
Such a granted exemption would not provide relief from any other 
violation of law, including any criminal conviction not expressly 
described herein. Pursuant to the terms of this proposed exemption, if 
granted, any criminal conviction not expressly described herein, but 
otherwise described in Section I(g) of PTE 84-14 and attributable to 
the applicant for purposes of PTE 84-14, would result in the 
applicant's loss of this exemption, if granted.
    Interested persons are directed to the First Proposal, the Facts 
and Representations of which are incorporated herein, for a more 
detailed description of the Department's views regarding the scope of 
relief and the adequacy of the conditions contained herein.

Effective Dates

    9. This Proposed Extension, if granted, will be effective from 
October 24, 2016 until the earlier of April 23, 2017 or the effective 
date of a final agency action made by the Department in connection with 
Exemption Application No. D-11856. Fiduciaries of ERISA-covered plans 
and IRAs with assets managed by a DB QPAM should be aware that, if this 
Proposed Extension is not granted, DB QPAMs may only rely on the relief 
provided in PTE 84-14 until October 23, 2016. If the Department grants 
this Proposed Extension, but makes a final decision not to propose the 
Second Request, the DB QPAMs will be unable to rely on the relief set 
forth in PTE 84-14, as of April 24, 2017. ERISA-covered plan and IRA 
fiduciaries should take note that, as described above, the conditions 
for PTE 2015-15 and this Proposed Extension require DB QPAMs to agree 
not to restrict the ability of each ERISA-covered plan or IRA client to 
terminate or withdraw from its arrangement with the DB QPAM, with 
certain limited exceptions.

Notice to Interested Persons

    Written comments and requests for a public hearing on the Proposed 
Extension should be submitted to the Department within seven (7) days 
from the date of publication of this Federal Register Notice. Given the 
short comment period, the Department will consider comments received 
after such date, in connection with its consideration of more permanent 
relief.
    Warning: Do not include any personally identifiable information 
(such as name, address, or other contact information) or confidential 
business information that you do not want publicly disclosed. All 
comments may be posted on the Internet and can be retrieved by most 
Internet search engines.

FOR FURTHER INFORMATION CONTACT: Scott Ness of the Department, 
telephone (202) 693-8561. (This is not a toll-free number.)

General Information

    The attention of interested persons is directed to the following:
    (1) The fact that a transaction is the subject of an exemption 
under section 408(a) of the Act and/or section 4975(c)(2) of the Code 
does not relieve a fiduciary or other party in interest or disqualified 
person from certain other provisions of the Act and/or the Code, 
including any prohibited transaction provisions to which the exemption 
does not apply and the general fiduciary responsibility provisions of 
section 404 of the Act, which, among other things, require a fiduciary 
to discharge his duties respecting the plan solely in the interest of 
the participants and beneficiaries of the plan and in a prudent fashion 
in accordance with section 404(a)(1)(b) of the Act; nor does it affect 
the requirement of section 401(a) of the Code that the plan must 
operate for the exclusive benefit of the employees of the employer 
maintaining the plan and their beneficiaries;
    (2) Before an exemption may be granted under section 408(a) of the 
Act and/or section 4975(c)(2) of the Code, the Department must find 
that the exemption is administratively feasible, in the interests of 
the plan and of its participants and beneficiaries, and protective of 
the rights of participants and beneficiaries of the plan;
    (3) The proposed exemptions, if granted, will be supplemental to, 
and not in derogation of, any other provisions of the Act and/or the 
Code, including statutory or administrative exemptions and transitional 
rules. Furthermore, the fact that a transaction is subject to an 
administrative or

[[Page 70583]]

statutory exemption is not dispositive of whether the transaction is in 
fact a prohibited transaction; and
    (4) The proposed exemptions, if granted, will be subject to the 
express condition that the material facts and representations contained 
in each application are true and complete, and that each application 
accurately describes all material terms of the transaction which is the 
subject of the exemption.

    Signed at Washington, DC, this 5th day of October, 2016.
Lyssa E. Hall,
Director, Office of Exemption Determinations, Employee Benefits 
Security Administration, U.S. Department of Labor.
[FR Doc. 2016-24595 Filed 10-11-16; 8:45 am]
 BILLING CODE 4510-29-P