Proposed Exemption From Certain Prohibited Transaction Restrictions, 12596-12606 [2018-05867]

Agencies

• Employee Benefits Security Administration
• DEPARTMENT OF LABOR

[Federal Register Volume 83, Number 56 (Thursday, March 22, 2018)]
[Notices]
[Pages 12596-12606]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-05867]


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DEPARTMENT OF LABOR

Employee Benefits Security Administration


Proposed Exemption From Certain Prohibited Transaction 
Restrictions

AGENCY: Employee Benefits Security Administration, Labor.

ACTION: Notice of proposed exemption.

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SUMMARY: This document contains notice of pendency before the 
Department of Labor (the Department) of a proposed individual exemption 
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). If this proposed one-year 
temporary exemption is granted, certain entities with specified 
relationships to BNP Paribas will not be precluded from relying on the 
exemptive relief provided by Prohibited Transaction Class Exemption 84-
14.

DATES: Applicable Date: If granted, this proposed one-year temporary 
exemption will be applicable for the period beginning on May 30, 2018 
until the earlier of: (1) May 29, 2019; or (2) the date of final agency 
action made by the Department in connection with an application for 
longer-term exemptive relief for the covered transactions described 
herein.
    Written comments and requests for a public hearing on the proposed 
exemption should be submitted to the Department within five days from 
the date of publication of this Federal Register Notice.

ADDRESSES: Comments should state the nature of the person's interest in 
the proposed exemption and the manner in which the person would be 
adversely affected by the exemption, if granted. A request for a 
hearing can be requested by any interested person who may be adversely 
affected by an exemption. A request for a hearing must state: (1) The 
name, address, telephone number, and email address of the person making 
the request; (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; and (3) a statement of the issues to be addressed and a 
general description of the evidence to be presented at the hearing. The 
Department will grant a request for a hearing made in accordance with 
the requirements above where a hearing is necessary to fully explore 
material factual issues identified by the person requesting the 
hearing. A notice of such hearing shall be published by the Department 
in the Federal Register. The Department may decline to hold a hearing 
where: (1) The request for the hearing does not meet the requirements 
above; (2) the only issues identified for exploration at the hearing 
are matters of law; or (3) the factual issues identified can be fully 
explored through the submission of evidence in written (including 
electronic) form.
    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. D-11949. Interested persons are also invited 
to submit comments and/or hearing requests to EBSA via email or FAX. 
Any such comments or requests should be sent either by email to: [email protected], or by FAX to (202) 693-8474 by the end of the scheduled 
comment period. The application for exemption and the comments received 
will be available for public inspection in the Public Documents Room of 
the Employee Benefits Security Administration, U.S. Department of 
Labor, Room N-1515, 200 Constitution Avenue NW, Washington, DC 20210.
    Warning: All comments received will be included in the public 
record without change and may be made available online at https://www.regulations.gov, including any personal information provided, 
unless the comment includes information claimed to be confidential or 
other information whose disclosure is restricted by statute. If you 
submit a comment, EBSA recommends that you include your name and other 
contact information in the body of your comment, but DO NOT submit 
information that you consider to be confidential, or otherwise 
protected (such as Social Security number or an unlisted phone number) 
or confidential business information that you do not want publicly 
disclosed. However, if EBSA cannot read your comment due to technical 
difficulties and cannot contact you for clarification, EBSA might not 
be able to consider your comment. Additionally, the https://www.regulations.gov website is an ``anonymous access'' system, which 
means EBSA will not know your identity or contact information unless 
you provide it in the body of your comment. If you send an email 
directly to EBSA without going through https://www.regulations.gov, your 
email address will be automatically captured and included as part of 
the comment

[[Page 12597]]

that is placed in the public record and made available on the internet.

FOR FURTHER INFORMATION CONTACT: Ms. Blessed Chuksorji-Keefe of the 
Department at (202) 693-8567. (This is not a toll-free number.)

SUPPLEMENTARY INFORMATION: 
    The anticipated court date for conviction will arise before the 
Department is able to perform a complete analysis of the application. 
Accordingly, the Department proposes to grant this temporary exemption 
to protect Covered Plans from certain costs and/or investment losses 
that may arise to the extent entities with a corporate relationship to 
BNP Paribas or BNP Paribas USA lose their ability to rely on PTE 84-14 
as of the Conviction Date, as described above. Comments received in 
response to this proposed one-year temporary exemption will also be 
considered in connection with the Department's determination whether or 
not to grant any subsequent exemption.
    The proposed exemption 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 
including any criminal conviction described herein.
    Furthermore, the Department cautions that the relief in this 
proposed exemption would terminate immediately if, among other things, 
an entity within the BNP Paribas corporate structure is convicted of a 
crime described in Section I(g) of PTE 84-14 (other than the 2015 
Convictions and the 2018 Conviction) during the Exemption Period. 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 
Covered 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 Covered Plan to 
terminate its relationship with an entity covered by the proposed 
exemption.

Summary of Facts and Representations [bds1]
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    \1\ The Summary of Facts and Representations is based on BNP's 
representations, unless indicated otherwise.
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    1. The Applicant is BNP Paribas S.A. (BNP Paribas) and its current 
and future affiliates, and certain related entities (collectively, the 
Applicant). BNP Paribas is a publicly-held French bank, with principal 
offices in Paris, France. BNP Paribas is the parent company of BNP 
Paribas USA, Inc. (hereinafter, BNP Paribas USA), which is the U.S. 
holding company for the U.S. Corporate and Investment Banking 
operations of BNP Paribas.\2\ It is expected that BNP Paribas USA will 
be criminally convicted on May 30, 2018 for misconduct relating to its 
FX operations, as described below.
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    \2\ BNP Paribas USA went by the name Paribas North America, Inc. 
during the misconduct described below.
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    2. BNP Paribas has several affiliates that provide investment 
management services. These affiliates manage or seek to manage the 
assets of ERISA-covered plans and IRAs on a discretionary basis, 
including retirement plans sponsored by BNP Paribas or an affiliate, 
whether through collective investment trusts or otherwise. As of March 
31, 2017, BNP Paribas' asset management division, BNP Paribas Asset 
Management (BNPP AM), managed approximately [euro]580 billion (US $619 
billion) in total client assets, including assets under advisory 
agreements, for clients located in 81 countries. BNPP AM had 
approximately 700 investment professionals in 34 countries, including 
65 in the United States.
    3. The primary registered adviser affiliates or banks in which BNP 
Paribas owns all or substantial interests, directly or indirectly, and 
which may use the QPAM exemption in managing plan assets (the BNP 
Affiliated QPAMs), include the following: BNP Paribas Asset Management 
USA, Inc.; BNP Paribas Asset Management UK Limited; BNP Paribas Asset 
Management Singapore Limited; Bank of the West; First Hawaiian Bank; 
BancWest Investment Services, Inc.; and Bishop Street Capital 
Management Corp. In total, the affiliated asset managers in the United 
States manage approximately $66 billion in client assets, and 
approximately $50 billion on a discretionary basis, over $3.5 billion 
of which is comprised of ERISA-covered plan and IRA assets. According 
to the Applicant, certain of these affiliates routinely use the QPAM 
exemption to provide relief for party-in-interest investment 
transactions.
    4. On May 1, 2015, the District Court for the Southern District of 
New York convicted BNP Paribas (hereinafter, BNP Paribas or BNP) in 
Case Number 14-cr-00460 (LGS) for conspiracy to commit an offense 
against the United States in violation of Title 18, United States Code, 
Section 371, by conspiring to violate the International Emergency 
Economic Powers Act, codified at Title 50, United States Code, Section 
1701 et seq., and regulations issued thereunder, and the Trading with 
the Enemy Act, codified at Title 50, United States Code Appendix, 
Section 1 et seq., and regulations issued thereunder (the U.S. 
Conviction). The Supreme Court of the State of New York, County of New 
York in Case Number 2014 NY 051231, also convicted BNP on April 15, 
2015 for falsifying business records in the first degree, in violation 
of Penal Law Sec.  175.10, and conspiracy in the fifth degree, in 
violation of Penal Law Sec.  105.05(1) (the New York Conviction, and 
with the U.S. Conviction, the 2015 Convictions). The 2015 Convictions 
involved a conspiracy that extended from as early as 2004 through 2012 
between BNP and banks and other entities located in or controlled by 
countries subject to U.S. sanctions, including Sudan, Iran, and Cuba 
(Sanctioned Entities), other financial institutions located in 
countries not subject to U.S. sanctions, and others known and unknown, 
to knowingly, intentionally and willfully move at least $8,833,600,000 
through the U.S. financial system on behalf of Sanctioned Entities in 
violation of U.S. sanctions laws, including transactions totaling at 
least $4.3 billion that involved Specially Designated Nationals 
(SDNs).\3\
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    \3\ An SDN appears on a list of individuals, groups, and 
entities subject to economic sanctions by OFAC. SDNs are 
specifically designated individuals and companies whose assets are 
blocked from the U.S. financial system. SDNs are included on the 
list because they are owned or controlled by, or acting for or on 
behalf of, targeted countries, as well as individuals, groups, and 
entities, such as terrorists and narcotics traffickers, designated 
under sanctions programs that are not country-specific.
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    5. In anticipation of the 2015 Convictions, BNP submitted to the 
Department of Labor (the Department) an application for an individual 
exemption, Exemption Application D-11827, on July 1, 2014, for certain 
BNP-affiliated and related QPAMs to continue to rely upon the relief 
provided by Prohibited Transaction Class Exemption (PTE) 84-14, 
notwithstanding the 2015 Convictions. On November 26, 2014, the 
Department published a notice of proposed exemption in the Federal 
Register, at 79 FR 70661. On April 15, 2015, the Department published a 
notice of final exemption, PTE 2015-06, at 80 FR 20261. That exemption 
contains numerous conditions, and precludes relief to the extent BNP, 
or certain parties related to BNP, are again convicted of a crime 
described in Section I(g) of PTE 84-14 (i.e., other than the 2015 
Convictions).
    6. On January 25, 2018, the U.S. Department of Justice (the 
Department of Justice) filed a criminal information in the District 
Court for the Southern District of New York (the ``District

[[Page 12598]]

Court'') charging BNP Paribas USA with a one-count violation of the 
Sherman Antitrust Act, 15 U.S.C. 1 (the Information). The Information 
charges that, from September 2011 until at least July 2013, BNP Paribas 
USA through a single Central and Eastern European, Middle Eastern and 
African Emerging Markets currencies (``CEEMEA'' currencies) trader 
employed by an affiliate of BNP Paribas USA, BNP Paribas Securities 
Corp. (BNP Sec Corp), participated in a conspiracy with employees of 
other financial institutions to suppress and eliminate competition in 
CEEMEA currencies by various means and methods, including by: (i) 
Agreeing to enter into non-bona fide trades among themselves on an 
electronic FX trading platform, for the sole purpose of manipulating 
prices; (ii) agreeing to subsequently cancel these non-bona fide 
trades, or to offset them by entering into equivalent trades in the 
opposite direction, in a manner designed to hide such actions from 
other FX market participants; (iii) coordinating on the price, size and 
timing of their bids and offers on an electronic FX trading platform in 
order to manipulate prices on that and other electronic FX trading 
platforms; (iv) agreeing to refrain from trading where one or more of 
the co-conspirators had a stronger need to buy or sell than the others, 
in order to prevent the co-conspirators from bidding up the price or 
offering down the price against each other; (v) coordinating their 
trading prior to and during fixes in a manner intended to manipulate 
final fix prices; (vi) coordinating their trading in order to move 
pricing through their customers' limit order levels; (vii) agreeing on 
pricing to quote to specific customers; and (viii) employing measures 
to hide their coordinated conduct from customers as well as other FX 
market participants (the Conduct).
    A plea agreement was presented to the District Court on January 25, 
2018 (the Plea Agreement). Under the Plea Agreement, BNP Paribas USA 
agreed to enter a plea of guilty (the Plea) to the charge set out in 
the Information (i.e., a one-count violation of the Sherman Antitrust 
Act). In addition, BNP Paribas USA will make an admission of guilt to 
the District Court. The Applicant expects that the District Court will 
enter a judgment against BNP Paribas USA that will require remedies 
that are materially the same as those set forth in the Plea Agreement.
    Under the Plea Agreement, among other things: BNP Paribas USA shall 
pay to the United States a criminal fine of $90 million; BNP Paribas 
USA and its related entities shall strengthen their compliance and 
internal controls as required by the Board of Governors of the Federal 
Reserve System (FRB), New York State Department of Financial Services 
(DFS), and any other regulatory or enforcement agencies that have 
addressed the Conduct; and for a period of three years from the date of 
execution of the Plea Agreement, BNP Paribas shall report to the 
Department of Justice Antitrust Division all credible information 
regarding criminal violations of U.S. antitrust laws by BNP Paribas USA 
and certain of its related entities, as well as any of their employees 
as to which supervisors within the bank (or legal and compliance 
personnel) are aware.
    7. The FRB entered a cease and desist order (the FRB Order) on July 
17, 2017, against BNP Paribas, BNP Paribas USA and BNP Sec Corp 
concerning unsafe and unsound banking- practices relating to BNP 
Paribas's FX business, including with respect to inappropriate 
communications between BNP Paribas FX traders and FX traders at other 
financial institutions and by BNP Paribas's FX sales personnel and 
customers. Such communications include disclosures of trading positions 
and coordination, disclosures of confidential customer information, 
discussions of bid/offer spreads offered to customers, and discussions 
on trading to trigger or defend FX barrier positions. The FRB Order 
required BNP Paribas to cease and desist, assessed a civil money 
penalty of $246,375,000, and required the parties thereto to agree to 
take certain affirmative actions. Under the FRB Order, BNP Paribas must 
create, with respect to FX and other benchmark related activities, an 
enhanced written internal controls and compliance program, an enhanced 
internal audit program, and a written plan to improve BNP Paribas' 
compliance and risk management program, each acceptable to the FRB. 
Under the FRB Order, BNP Paribas must also conduct an exemption review 
of compliance policies and a risk-focused sampling of key controls 
regarding FX and other benchmark-related activities.
    8. The DFS entered into a consent order (the DFS Order) on May 24, 
2017 with BNP Paribas and its New York branch (the DFS Order Parties) 
to settle DFS's investigations into alleged violations of the New York 
Banking Law (Banking Law) with respect to FX business during the period 
between 2007 and 2013. The conduct described in the DFS Order includes 
collusive conduct carried out through on-line chat rooms, improper 
exchanges of information, manipulating prices, and misleading customers 
by hiding markups on executed trades. The DFS Order finds that the DFS 
Order Parties violated the Banking Law by conducting business in an 
unsafe and unsound manner and by failing to maintain and make available 
true and accurate books, accounts, and records reflecting all 
transactions and actions and also violated a provision of the New York 
Codes, Rules and Regulations by failing to submit a report to the 
Superintendent immediately upon discovering fraud, dishonesty, making 
of false entries or omission of true entries, or other misconduct. 
Pursuant to the DFS Order, the DFS Order Parties were required to pay a 
civil monetary penalty of $350 million, which was paid on June 1, 2017. 
The DFS Order also requires the DFS Order Parties to submit written 
proposals for approval by the DPS covering its senior management 
oversight, internal controls and compliance program, compliance risk 
management program, and internal audit program regarding the DPS Order 
Parties' FX trading business and related sales activities.
    9. As noted above, the BNP Affiliated QPAMs and BNP Related QPAMs 
will no longer be able to rely on the relief described in PTE 2015-06 
as of the sentencing date of the 2018 Conviction, which is tentatively 
scheduled for May 30, 2018. BNP, in its application for this exemption, 
represents that ``great harm would be caused to plans if there were any 
gap in the relief between PTE 2015-06 and the relief contained 
herein.'' In this regard, the Applicant states that, as of March 31, 
2017, BNPP AM USA managed approximately $1.6 billion in assets for 
eight plans that are subject to ERISA or the Code by operation of 
law.\4\ BNPP AM USA manages fixed income, currency, and equity 
strategies, utilizing the following derivative instruments, among 
others: foreign exchange forwards, credit linked notes, structured 
notes, and swaps. The Applicant states that many of the firm's pension 
plan accounts, especially those that are subject to ERISA, are 
dependent on the QPAM Exemption for such instruments. According to the 
Applicant, without such instruments, BNPP AM USA would be unable to 
fulfill its mandate to these plans. In addition to direct costs, there 
are indirect costs to departing

[[Page 12599]]

clients, such as the cost to the plans of issuing RFPs, finding other 
managers, and other costs that may be associated with reinvesting the 
assets.
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    \4\ The Applicant states that BNPP AM USA managed more than $1.6 
billion in public plan assets that are subject to ERISA by contract. 
The Applicant states that it is appropriate for the Department to 
take cognizance of the effect that the denial of relief in this case 
would have on participants in public plans, which often hold their 
managers to ``ERISA-like'' standards, and who may well decide to 
change managers if the Applicant were denied relief, causing 
transition costs for those plans as well.
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    The Applicant states further that First Hawaiian Bank, the asset 
manager associated with BancWest Corporation's Hawaiian affiliates, 
manages 80 ERISA plans with approximately $1.46 billion in assets, and 
479 IRAs with approximately $173.2 million in assets. ERISA plan and 
IRA portfolios are comprised of investment-grade taxable fixed income 
securities, equity strategies, and equity linked notes, as well as ETFs 
and mutual funds that are used in balanced portfolios, which may rely 
on the QPAM Exemption. The Applicant ``conservatively'' estimates that, 
in the event exemptive relief is not granted, the transaction and 
related costs to liquidate various security holdings in these plans and 
IRAs would be approximately $818,995 (i.e., five basis points on the 
market value of the affected plans), not including reinvestment costs.
    The Applicant states that, as of March 31, 2017, Bank of the West 
managed 25 ERISA plans with approximately $78 million in discretionary 
assets, and 351 IRAs with over $204.5 million in discretionary assets, 
including accounts with assets that are not held at Bank of the West. 
These accounts are invested across various asset classes, including but 
not limited to fixed income securities, ETFs, and mutual funds where 
Bank of the West may rely on several potential exemptions, including 
but not limited to the QPAM Exemption. The Applicant states that using 
five basis points on the market value of the affected accounts, and 
assuming that the assets would need to be liquidated because clients 
would not be prepared to have a manager that had been affirmatively 
denied relief under the QPAM Exemption, the liquidation cost would be 
over $141,066, not including additional costs that may be associated 
with reinvesting the liquidated assets.
    The Applicant states that if the exemption request is denied, plans 
that decide to continue to employ the Affiliated QPAMs could be 
prohibited from engaging in certain transactions that would be 
beneficial to such plans, such as hedging transactions using over-the-
counter options or derivatives. The Applicant states that, even if 
other exemptions were acceptable to such counterparties, the cost of 
the transaction could still increase.
    The Applicant requests an exemption that contains the conditions 
set forth in PTE 2015-06. According to the Applicant, such an exemption 
would be protective of plans in that: (i) The entity pleading guilty 
will not be involved in the provision of discretionary investment 
management services to ERISA-covered plans and IRAs; and (ii) there 
have been, and will be, policies and procedures and training in place 
for the Affiliated QPAMs. BNP represents further that BNP Paribas 
employees outside of the Affiliated QPAMs are not consulted with 
respect to trading decisions and investment strategies of the 
Affiliated QPAMs for their ERISA-covered plan and IRA clients, nor do 
the Affiliated QPAMs consult with other parts of the BNP Paribas 
organization in connection with investment decisions made on behalf of 
their ERISA-covered plan and IRA clients. BNP states that BNP Paribas 
will maintain internal control procedures designed to prevent improper 
activities and has complied (and will continue to comply) with all 
applicable requirements specified in the orders and Plea Agreement and 
any other agreements entered into by BNP Paribas and BNP Paribas USA 
with other domestic and foreign regulatory agencies in connection with 
the Conduct. Policies and procedures will be reasonably designed to 
protect the ERISA-covered plan and IRA clients of the asset management 
businesses of the Affiliated QPAMs from improper influence on the part 
of affiliated entities. Finally, the Applicant notes that all of the 
conditions that make the QPAM Exemption protective of the rights of 
participants and beneficiaries of ERISA plans and IRAs will be 
incorporated into this exemption, if granted.
    10. The Department is not persuaded that the conditions of PTE 
2015-06 are sufficient to protect plans subject to Part 4 of Title I of 
ERISA (an ERISA-covered plan) or plans subject to section 4975 of the 
Code (an IRA), in each case, with respect to which a BNP Affiliated 
QPAM relies on PTE 84-14, or with respect to which a BNP Affiliated 
QPAM (or any BNP Paribas affiliate) has expressly represented that the 
manager qualifies as a QPAM or relies on the QPAM class exemption (PTE 
84-14) (Covered Plans).\5\ The conditions in PTE 2015-06 do not take 
into account the second Conviction in 2018. Further, after reviewing 
the application for this exemption, the Department believes additional 
conditions are necessary to protect Covered Plans during the Exemption 
Period. These additional conditions reflect the Department's concern 
regarding the level of misconduct engaged in by BNP personnel. As noted 
in the New York State Department of Financial Services Consent Order, 
``The misconduct engaged in by more than a dozen BNPP traders and 
salespersons was broad; sometimes very deep; involved employees located 
in both New York and other BNPP locations across the globe; and 
occurred over an extended period of time.'' \6\
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    \5\ For purposes of this exemption, a Covered Plan does not 
include an ERISA-covered plan or IRA to the extent the BNP 
Affiliated QPAM has expressly disclaimed reliance on QPAM status or 
PTE 84-14 in entering into a contract, arrangement, or agreement 
with the ERISA-covered plan or IRA.
    \6\ In its application to the Department, the Applicant 
represented that, among other things: BNP Paribas has continued to 
enhance its enterprise-wide compliance program in an effort driven 
by senior management. BNP Paribas has increased the budget of the 
compliance function by [euro]327 million since 2014 to bolster its 
compliance function, bringing the 2017 compliance function budget to 
[euro]682 million. BNP Paribas has added over 2,000 compliance 
personnel, more than doubling the number of the global compliance 
staff to over 3,800 compliance officers worldwide between 2014 and 
2017. Further, BNP Paribas has invested in compliance projects, 
information technology, management information systems, legal, and 
other enhancement and remediation efforts.
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    This exemption's conditions are discussed below. This exemption, if 
granted, is effective from May 30, 2018 until the earlier of May 29, 
2019 or the date a final agency action is made by the Department in 
connection with an application for longer-term exemptive relief for the 
covered transactions described herein. If the Applicant submits an 
exemption request for longer term relief, and the Department 
subsequently determines that longer term relief is warranted, the 
effective period of this exemption will end on the earlier of May 29, 
2019, or the effective date of such new exemption.
    11. Several of this exemption's conditions are aimed at ensuring 
that the BNP Affiliated QPAMs and Related QPAMs were not involved in 
the conduct that gave rise to any of the BNP Convictions (i.e., the 
2015 BNP Convictions and the 2018 BNP Conviction). Accordingly, the 
exemption generally precludes relief to the extent the BNP Affiliated 
QPAMs and the BNP Related QPAMs were aware of, participated in, 
approved of, furthered, benefitted, or profited from, the misconduct 
that is the subject of the BNP Convictions.\7\ Further, the BNP 
Affiliated QPAMs may not employ or knowingly engage any of the 
individuals that participated in the BNP conduct attributable to any of 
the BNP Convictions.
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    \7\ For clarity, references to the BNP Affiliated QPAMs and the 
BNP Related QPAMs include any individual employed by or engaged to 
work on behalf of these QPAMs during or after the period of 
misconduct.
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    12. The exemption further provides that no BNP Affiliated QPAM will 
use

[[Page 12600]]

its authority or influence to direct an ``investment fund'' that is 
subject to ERISA or the Code and managed by such BNP Affiliated QPAM 
with respect to one of more Covered Plans, to enter into any 
transaction with BNP Paribas or BNP Paribas USA, or engage BNP Paribas 
or BNP Paribas USA 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.
    13. This exemption will terminate if BNP Paribas or any of its 
affiliates are convicted of any additional crimes described in Section 
I(g) of PTE 84-14, or if any of the other conditions of PTE 84-14 have 
not been met. Also, with very limited exceptions, BNP Paribas and BNP 
Paribas USA may not act as a fiduciary within the meaning of section 
3(21)(A)(i) or (iii) of ERISA, or section 4975(e)(3)(A) and (C) of the 
Code, with respect to ERISA-covered plan and IRA assets. BNP Paribas is 
defined to include BNP Sec Corp, which was subject to FRB's cease and 
desist order (along with BNP Paribas and BNP Paribas USA) based on 
unsafe and unsound banking- practices relating to BNP Paribas's FX 
business. BNP is defined to include its New York branch, which employed 
individuals who engaged in the FX misconduct, as noted in the NYDFS 
Consent Order.
    14. The exemption requires each BNP Affiliated QPAM to update, 
implement and follow certain written policies and procedures (the 
Policies) by the Conviction Date. These Policies are similar to the 
policies and procedures mandated by PTE 2015-06. In general terms, the 
Policies must require, and must be reasonably designed to ensure that, 
among other things: the asset management decisions of the BNP 
Affiliated QPAM are conducted independently of the corporate management 
and business activities of BNP Paribas and BNP Paribas USA; the BNP 
Affiliated QPAM fully complies with ERISA's fiduciary duties, and with 
ERISA and the Code's prohibited transaction provisions; the BNP 
Affiliated QPAM does not knowingly participate in any other person's 
violation of ERISA or the Code with respect to Covered Plans; any 
filings or statements made by the BNP Affiliated QPAM to regulators, on 
behalf of or in relation to Covered Plans, are materially accurate and 
complete; the BNP Affiliated QPAM does not make material 
misrepresentations or omit material information in its communications 
with such regulators with respect to Covered Plans; the BNP Affiliated 
QPAM complies with the terms of this exemption; and any violation of, 
or failure to comply with any of these items, is corrected as soon as 
reasonably possible upon discovery, or as soon after the QPAM 
reasonably should have known of the noncompliance (whichever is 
earlier). Any such violation or compliance failure not so corrected 
must be reported, upon the discovery of such failure to so correct, in 
writing, to appropriate corporate officers, the head of compliance and 
the General Counsel (or their functional equivalent), and the 
independent auditor responsible for reviewing compliance with the 
Policies.
    15. This exemption mandates training (Training), which is similar 
to the training required under PTE 2015-06. In this regard, all 
relevant UBS QPAM asset/portfolio management, trading, legal, 
compliance, and internal audit personnel must be trained during the 
Exemption Period. Among other things, the Training must, at a minimum, 
cover the Policies, ERISA and Code compliance, ethical conduct, the 
consequences for not complying with the conditions of this exemption 
(including any loss of exemptive relief provided herein), and the 
requirement for prompt reporting of wrongdoing. The Training must be 
conducted by a professional who has been prudently selected and who has 
appropriate technical training and proficiency with ERISA and the Code.
    16. As in PTE 2015-06, under this exemption, each BNP Affiliated 
QPAM must submit to an audit conducted by an independent auditor.\8\ 
Among other things, the auditor must test a sample of each BNP 
Affiliated QPAM's transactions involving Covered Plans, sufficient in 
size and nature to afford the auditor a reasonable basis to determine 
such QPAM's operational compliance with the Policies and Training. The 
auditor's conclusions cannot be based solely on the Exemption Report 
created by the Compliance Officer, described below, in lieu of 
independent determinations and testing performed by the auditor.
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    \8\ Audits covering time periods prior to the Conviction Date 
must be completed in accordance with the requirements of PTE 2015-
06, as applicable.
---------------------------------------------------------------------------

    The Audit Report must be certified by the General Counsel or one of 
the three most senior executive officers of the BNP Affiliated QPAM to 
which the Audit Report applies. A copy of the Audit Report must be 
provided to the Risk Committee of BNP's Board of Directors. Among other 
things, BNP must submit to the Office of Exemption Determinations 
(OED), no later than two months after the Conviction Date, any 
engagement agreement with an auditor to perform the audit required 
under the terms of this exemption.
    17. This exemption requires that, as of May 30, 2018, and 
throughout the Exemption Period, with respect to any arrangement, 
agreement, or contract between a BNP Affiliated QPAM and a Covered 
Plan, the BNP Affiliated QPAM must agree and warrant: (i) To comply 
with ERISA and the Code, as applicable with respect to such Covered 
Plan; and (ii) to refrain from engaging in prohibited transactions that 
are not otherwise exempt (and to promptly correct any inadvertent 
prohibited transactions). This provision is enhanced relative to PTE 
2015-06, in that each BNP Affiliated QPAM must now further agree and 
warrant to comply with the standards of prudence and loyalty set forth 
in section 404 of ERISA with respect to each such ERISA-covered plan. 
Each BNP Affiliated QPAM must also agree and warrant to indemnify and 
hold harmless such Covered Plan for any actual losses resulting 
directly from any of the following: (a) A BNP Affiliated QPAM's 
violation of ERISA's fiduciary duties, as applicable, and/or the 
prohibited transaction provisions of ERISA and the Code, as applicable; 
(b) a breach of contract by the QPAM; or (c) any claim arising out of 
the failure of such BNP Affiliated 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. This condition applies only to 
actual losses caused by the BNP Affiliated QPAM. As noted above, the 
Applicant has identified a wide range of potential harm and costs that 
may be incurred by plans and IRAs if the BNP Affiliated QPAMs were no 
longer able to rely on PTE 84-14. The Department views actual losses 
arising from unwinding transactions with third parties, and from 
transitioning Covered Plan assets to third parties, to be ``direct'' 
results of violating the terms of this provision.
    18. This exemption contains specific notice requirements. In this 
regard, by July 29, 2018, each BNP Affiliated QPAM will provide a 
notice of the exemption, along with a separate summary describing the 
facts that led to the Conviction (the Summary), which have been 
submitted to the Department, and a prominently displayed statement (the 
Statement) (collectively, Initial Notice) that the Conviction results 
in a failure to meet a condition in PTE 84-14, to each sponsor and 
beneficial owner of a Covered Plan, or the sponsor

[[Page 12601]]

of an investment fund in any case where a BNP Affiliated QPAM acts as a 
sub-advisor to the investment fund in which such ERISA-covered plan and 
IRA invests. All prospective Covered Plans that enter into a written 
asset or investment management agreement with a BNP Affiliated QPAM on 
or after the date of the Initial Notice must receive a copy of the 
exemption, the Summary, and the Statement prior to, or 
contemporaneously with, the Covered Plan's receipt of a written asset 
management agreement from the BNP Affiliated QPAM. The notice 
requirements shall operate in tandem to ensure that all Covered Plan 
clients receive either the Initial Notice or a subsequent notice. 
Disclosures may be delivered electronically.
    19. The exemption requires that each BNP Affiliated QPAM maintain 
records necessary to demonstrate that the conditions of this exemption 
have been met, for six (6) years following the date of any transaction 
for which such BNP Affiliated QPAM relies upon the relief in the 
exemption.
    20. This exemption contains several conditions not found in PTE 
2015-06. First, this exemption mandates a compliance officer, a review, 
and an exemption report. By November 29, 2018, BNP Paribas must 
designate a senior compliance officer (the Compliance Officer) who will 
be responsible for compliance with the Policies and Training 
requirements described herein. The Compliance Officer must conduct an 
exemption review (the Exemption Review) for the period beginning on May 
30, 2018,\9\ to determine the adequacy and effectiveness of the 
implementation of the Policies and Training. The Compliance Officer 
must be a professional with extensive relevant experience with a direct 
reporting line to the highest-ranking corporate officer in charge of 
legal compliance for asset management.
    At a minimum, the Exemption Review must include review of the 
following items: (i) Any compliance matter related to the Policies or 
Training that was identified by, or reported to, the Compliance Officer 
during the previous year; (ii) any material change in the relevant 
business activities of the BNP Affiliated QPAMs; and (iii) any change 
to ERISA, the Code, or regulations that may be applicable to the 
activities of the BNP Affiliated QPAMs.
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    \9\ Such Exemption Review must be completed with respect to the 
Exemption Period.
---------------------------------------------------------------------------

    The Compliance Officer must prepare a written report (an Exemption 
Report) that summarizes his or her material activities during the 
Exemption Period and sets forth any instance of noncompliance 
discovered during the Exemption Period, and any related corrective 
action. In each Exemption Report, the Compliance Officer must certify 
in writing that to his or her knowledge the report is accurate and the 
BNP Affiliated QPAMs have complied with the Policies and Training, and/
or corrected (or are correcting) any instances of noncompliance.
    The Exemption Report must be provided to the appropriate corporate 
officers of BNP Paribas and each BNP Affiliated QPAM to which such 
report relates and to the head of compliance and the General Counsel 
(or their functional equivalent) of the relevant BNP Affiliated QPAM. 
The Exemption Report must be made unconditionally available to the 
independent auditor. The Exemption Review, including the Compliance 
Officer's written Exemption Report, must be completed within three (3) 
months following the end of the period to which it relates.
    21. BNP Paribas must also immediately disclose to the Department 
any Deferred Prosecution Agreement (a DPA) or Non-Prosecution Agreement 
(an NPA) with the U.S. Department of Justice, entered into by BNP 
Paribas or any of its affiliates (as defined in Section VI(d) of PTE 
84-14) in connection with conduct described in Section I(g) of PTE 84-
14 or section 411 of ERISA. BNP Paribas must also immediately provide 
the Department with any information requested by the Department, as 
permitted by law, regarding the agreement and/or conduct and 
allegations that led to the agreement.
    22. The exemption mandates that, among other things, each BNP 
Affiliated QPAM clearly and prominently informs Covered Plan clients of 
their right to obtain a copy of the Policies or a description (Summary 
Policies) which accurately summarizes key components of the BNP 
Affiliated QPAM's written Policies developed in connection with this 
exemption. If the Policies are thereafter changed, each Covered Plan 
client must receive a new disclosure within six (6) months following 
the end of the calendar year during which the Policies were 
changed.\10\ With respect to this requirement, the description may be 
continuously maintained on a website, provided that such website link 
to the Policies or Summary Policies is clearly and prominently 
disclosed to each Covered Plan.
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    \10\ In the event Applicant meets this disclosure requirement 
through Summary Policies, changes to the Policies shall not result 
in the requirement for a new disclosure unless the Summary Policies 
are no longer accurate because of the changes.
---------------------------------------------------------------------------

    23. The exemption contains several defined terms. Notably, the term 
``BNP Paribas'' is defined to include its subsidiary, BNP Paribas 
Securities Corp., which was identified in the FRB's cease and desist 
order concerning unsafe and unsound banking practices relating to BNP 
Paribas's FX business. The term ``BNP Paribas USA'' means BNP Paribas 
USA, Inc., and includes its New York branch, which was a party to the 
DFS Order.

Statutory Findings

    24. Section 408(a) of ERISA provides, in part, that the Department 
may not grant an exemption unless the Department finds that such 
exemption is administratively feasible, in the interest of affected 
plans and of their participants and beneficiaries, and protective of 
the rights of such participants and beneficiaries.
    The Department has tentatively determined that the relief sought by 
the Applicant satisfies the statutory requirements set forth in Section 
408(a) of ERISA. In this regard, the Department has tentatively 
determined that the exemption is administratively feasible since, among 
other things, a qualified independent auditor will be required to 
perform an in-depth audit covering, among other things, each QPAM's 
compliance with the exemption, and a corresponding written audit report 
will be provided to the Department and available to the public. The 
Department tentatively views the proposed temporary exemption as 
protective of Covered Plans given that that the exemption requires, 
among other things, that a senior compliance officer conduct an 
Exemption Review and prepare a written report that sets forth any 
instance of noncompliance discovered during the Exemption Period, and 
any related corrective action. Finally, the Department tentatively 
views the proposed temporary exemption as in the interest of Covered 
Plans since, among other things, the limited effective duration of the 
temporary exemption provides the Department with the opportunity to 
determine whether long-term exemptive relief is warranted, without 
causing sudden and potentially costly harm to Covered Plans, as 
described above in paragraph 9. Such potential costly harm includes the 
possible default of certain Covered Plan investments; the cost to 
identifying a new asset manager; and the liquidation and reinvestment 
costs associated with transitioning Covered Plan assets to such new 
asset manager.

[[Page 12602]]

Notice to Interested Persons

    Notice to interested persons is by publication of this notice of 
proposed temporary one-year exemption in the Federal Register. All 
written comments and/or requests for a hearing must be received by the 
Department within five days of the date of publication of this proposed 
exemption in the Federal Register.
    All comments will be made available to the public.

    Warning:  If you submit a comment, EBSA recommends that you 
include your name and other contact information in the body of your 
comment, but DO NOT submit information that you consider to be 
confidential, or otherwise protected (such as a Social Security 
number or an unlisted phone number) or confidential business 
information that you do not want publicly disclosed. All comments 
may be posted on the internet and can be retrieved by most internet 
search engines.

General Information

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

Proposed Exemption

    The Department is considering granting a one-year temporary 
exemption under the authority of section 408(a) of the Act (or ERISA) 
and section 4975(c)(2) of the Internal Revenue Code (or Code), and in 
accordance with the procedures set forth in 29 CFR part 2570, subpart B 
(76 FR 66637, 66644, October 27, 2011).\11\ 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, this notice of proposed exemption is issued solely by the 
Department.
---------------------------------------------------------------------------

    \11\ For purposes of this proposed one-year 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 one-year temporary exemption is granted, certain 
entities with specified relationships to BNP Paribas (hereinafter, the 
BNP Affiliated QPAMs and the BNP Related QPAMs, as defined in Sections 
III(b) and III(c), respectively) will not be precluded from relying on 
the exemptive relief provided by Prohibited Transaction Class Exemption 
84-14 (PTE 84-14 or the QPAM Exemption),\12\ notwithstanding the 2015 
Convictions of BNP Paribas (as defined in Section III(d)(1)) and the 
2018 Conviction of BNP Paribas USA, Inc. (as defined in Section 
III(d)(2)).\13\
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    \12\ 49 FR 9494 (March 13, 1984), as corrected at 50 FR 41430, 
(October 10, 1985), as amended at 70 FR 49305 (August 23, 2005), and 
as amended at 75 FR 38837 (July 6, 2010), hereinafter referred to as 
``PTE 84-14'' or the ``QPAM Exemption.''
    \13\ 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 criminal activity therein described.
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Section II. Conditions

    (a) The BNP Affiliated QPAMs and the BNP Related QPAMs (including 
their officers, directors, agents other than BNP Paribas and BNP 
Paribas USA, Inc. (BNP Paribas USA)), and employees of such QPAMs and 
any other party engaged on behalf of such QPAMs who had responsibility 
for, or exercised authority in connection with the management of plan 
assets) did not know of, did not have reason to know of, or participate 
in: (1) The criminal conduct of BNP Paribas that is the subject of the 
2015 Convictions; or (2) the criminal conduct of BNP Paribas USA that 
is the subject of the 2018 Conviction (hereinafter, collectively, the 
BNP Convictions). ``Participate in'' means the knowing approval of the 
misconduct underlying the BNP Convictions;
    (b) The BNP Affiliated QPAMs and the BNP Related QPAMs (including 
their officers, directors, agents other than BNP Paribas and BNP 
Paribas USA, and employees of such QPAMs and any other parties engaged 
on behalf of such QPAMs) did not receive direct compensation, or 
knowingly receive indirect compensation, in connection with the 
criminal conduct that is the subject of the BNP Convictions (the BNP 
Misconduct);
    (c) The BNP Affiliated QPAMs will not employ or knowingly engage 
any of the individuals that participated in the BNP Misconduct. 
``Participated in'' means the knowing approval of the misconduct 
underlying the BNP convictions;
    (d) At all times during the Exemption Period, no BNP Affiliated 
QPAM 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 or the Code and managed by such BNP Affiliated QPAM with respect 
to one of more Covered Plans (as defined in Section III(f)) to enter 
into any transaction with BNP Paribas or BNP Paribas USA or to engage 
BNP Paribas or BNP Paribas USA 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 BNP Affiliated QPAMs or the BNP Related 
QPAMs to satisfy Section I(g) of PTE 84-14 arose solely from the BNP 
Convictions;
    (f) A BNP Affiliated QPAM or a BNP Related QPAM did not exercise 
authority over 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) in a 
manner that it knew or should have known would: Further the criminal 
conduct that is the subject of the BNP Convictions; or cause

[[Page 12603]]

the BNP Affiliated QPAM, the BNP Related QPAM, or their affiliates to 
directly or indirectly profit from the criminal conduct that is the 
subject of the BNP Convictions;
    (g) Other than with respect to employee benefit plans maintained or 
sponsored for its own employees or the employees of an affiliate, BNP 
Paribas and BNP Paribas USA will not act as fiduciaries within the 
meaning of section 3(21)(A)(i) or (iii) of ERISA, or section 
4975(e)(3)(A) and (C) of the Code, with respect to ERISA-covered plan 
and IRA assets; provided, however, that BNP Paribas or BNP Paribas USA 
will not be treated as violating the conditions of this exemption 
solely because it acted as an investment advice fiduciary within the 
meaning of section 3(21)(A)(ii) of ERISA or section 4975(e)(3)(B) of 
the Code;
    (h)(1) Each BNP Affiliated QPAM must continue to maintain, adjust 
(to the extent necessary), implement, and follow written policies and 
procedures (the Policies). The Policies must require, and must be 
reasonably designed to ensure that:
    (i) The asset management decisions of the BNP Affiliated QPAM are 
conducted independently of the corporate management and business 
activities of BNP Paribas and BNP Paribas USA. This condition does not 
preclude a BNP Affiliated QPAM from receiving publicly available 
research and other widely available information from a BNP Paribas 
affiliate;
    (ii) The BNP Affiliated QPAM fully complies with ERISA's fiduciary 
duties, and with ERISA and the Code's prohibited transaction 
provisions, in each case as applicable with respect to each Covered 
Plan, and does not knowingly participate in any violation of these 
duties and provisions with respect to Covered Plans;
    (iii) The BNP Affiliated QPAM does not knowingly participate in any 
other person's violation of ERISA or the Code with respect to Covered 
Plans;
    (iv) Any filings or statements made by the BNP Affiliated QPAM to 
regulators, including, but not limited to, the Department, the 
Department of the Treasury, the Department of Justice, and the Pension 
Benefit Guaranty Corporation, on behalf of or in relation to Covered 
Plans, are materially accurate and complete, to the best of such QPAM's 
knowledge at that time;
    (v) To the best of the BNP Affiliated QPAM's knowledge at the time, 
the BNP Affiliated QPAM does not make material misrepresentations or 
omit material information in its communications with such regulators 
with respect to Covered Plans, or make material misrepresentations or 
omit material information in its communications with Covered Plans;
    (vi) The BNP Affiliated QPAM complies with the terms of this 
exemption; and
    (vii) Any violation of, or failure to comply with an item in 
subparagraphs (ii) through (vi), is corrected as soon as reasonably 
possible upon discovery, or as soon after the QPAM reasonably should 
have known of the noncompliance (whichever is earlier), and any such 
violation or compliance failure not so corrected is reported, upon the 
discovery of such failure to so correct, in writing. Such report shall 
be made to the head of compliance and the General Counsel (or their 
functional equivalent) of the relevant BNP Affiliated QPAM that engaged 
in the violation or failure, and, the independent auditor responsible 
for reviewing compliance with the Policies, and a fiduciary of any 
affected Covered Plan where such fiduciary is independent of BNP. 
Notwithstanding the foregoing, with respect to any Covered Plan 
sponsored by an ``affiliate'' (as defined in Section VI(d) of PTE 84-
14) of BNP or beneficially owned by an employee of BNP or its 
affiliates, such fiduciary does not need to be independent of BNP. A 
BNP Affiliated QPAM will not be treated as having failed to develop, 
implement, maintain, or follow the Policies, provided that it corrects 
any instance of noncompliance as soon as reasonably possible upon 
discovery, or as soon as reasonably possible after the QPAM 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 BNP Affiliated QPAM will maintain, adjust (to the extent 
necessary) and implement a program of training during the Exemption 
Period, to be conducted during the Exemption Period, for all relevant 
BNP Affiliated QPAM asset/portfolio management, trading, legal, 
compliance, and internal audit personnel. The Training must:
    (i) 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 exemption (including any loss of exemptive 
relief provided herein), and prompt reporting of wrongdoing; and
    (ii) Be conducted by a professional who has been prudently selected 
and who has appropriate technical training and proficiency with ERISA 
and the Code;
    (i)(1) Each BNP Affiliated 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 each BNP Affiliated QPAM's compliance 
with, the Policies and Training described herein. The audit requirement 
must be incorporated in the Policies. The audit must cover the 
Exemption Period and must be completed no later than six (6) months 
after the end of the Exemption Period. For time periods ending prior to 
the Conviction Date and covered by the audit required pursuant to PTE 
2015-06,\14\ the audit requirements in Section I(h) of PTE 2015-06 will 
remain in effect. The final audit under PTE 2015-06 covering the time 
period from October 15, 2017 until the Conviction Date must be 
completed within six (6) months of Conviction Date, and the 
corresponding certified Audit Report must be submitted to the 
Department no later than 30 days following the completion of such 
audit; \15\
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    \14\ 80 FR 20261 (April 15, 2015). PTE 2015-06 is an exemption 
in respect of Exemption Application D-11863 that permits BNP 
Affiliated QPAMs to rely on the exemptive relief provided by PTE 84-
14, notwithstanding the 2014 Convictions.
    \15\ Pursuant to PTE 2015-06, the annual audit periods are from 
October 15th through October 14th of the following year. The audits 
are to be completed 6 (six) months after the end of the audit period 
and the Audit Report submitted to the Department within 30 days 
after completion. Accordingly, the last full twelve-month audit for 
the period October 15, 2016 through October 14, 2017 must be 
submitted to the Department by May 14, 2018.
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    (2) Within the scope of the audit and 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 only to the extent such 
disclosure is not prevented by state or federal statute, or involves 
communications subject to attorney client privilege, each BNP 
Affiliated QPAM and, if applicable, BNP, 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. Such access is limited to 
information relevant to the auditor's objectives as specified by the 
terms of this exemption;
    (3) The auditor's engagement must specifically require the auditor 
to determine whether each BNP Affiliated QPAM has developed, 
implemented, maintained, and followed the Policies in accordance with 
the conditions of this exemption, and has developed and implemented the 
Training, as required herein;

[[Page 12604]]

    (4) The auditor's engagement must specifically require the auditor 
to test each BNP Affiliated QPAM's operational compliance with the 
Policies and Training. In this regard, the auditor must test, for each 
BNP Affiliated QPAM, a sample of such QPAM's transactions involving 
Covered Plans, sufficient in size and nature to afford the auditor a 
reasonable basis to determine such QPAM's operational compliance with 
the Policies and Training;
    (5) For the audit, on or before the end of the relevant period 
described in Section I(i)(1) for completing the audit, the auditor must 
issue a written report (the Audit Report) to BNP and the BNP Affiliated 
QPAM to which the audit applies that describes the procedures performed 
by the auditor in connection with its examination. The auditor, at its 
discretion, may issue a single consolidated Audit Report that covers 
all the BNP Affiliated QPAMs. The Audit Report must include the 
auditor's specific determinations regarding:
    (i) The adequacy of each BNP Affiliated QPAM's Policies and 
Training; each BNP Affiliated QPAM's compliance with the Policies and 
Training; the need, if any, to strengthen such Policies and Training; 
and any instance of the respective BNP Affiliated QPAM's noncompliance 
with the written Policies and Training described in Section I(h) above. 
The BNP Affiliated QPAM must promptly address any noncompliance. The 
BNP Affiliated QPAM must promptly address or prepare a written plan of 
action to address any determination of inadequacy 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 BNP Affiliated QPAM. Any action taken or the 
plan of action to be taken by the respective BNP Affiliated QPAM must 
be included in an addendum to the Audit Report (such addendum must be 
completed prior to the certification described in Section I(i)(7) 
below). In the event such a plan of action to address the auditor's 
recommendation regarding the adequacy of the Policies and Training is 
not completed by the time of submission of the Audit Report, the 
following period's Audit Report must state whether the plan was 
satisfactorily completed. Any determination by the auditor that a BNP 
Affiliated QPAM has implemented, maintained, and followed sufficient 
Policies and Training must not be based solely or in substantial part 
on an absence of evidence indicating noncompliance. In this last 
regard, any finding that a BNP Affiliated QPAM has complied with the 
requirements under this subparagraph must be based on evidence that the 
particular BNP Affiliated QPAM has actually implemented, maintained, 
and followed the Policies and Training required by this exemption. 
Furthermore, the auditor must not solely rely on the Exemption Report 
created by the compliance officer (the Compliance Officer), as 
described in Section I(m) below, as the basis for the auditor's 
conclusions in lieu of independent determinations and testing performed 
by the auditor as required by Section I(i)(3) and (4) above; and
    (ii) The adequacy of the Exemption Review described in Section 
I(m);
    (6) The auditor must notify the BNP Affiliated QPAM of any instance 
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 the Audit Report, the General Counsel, or one 
of the three most senior executive officers of the BNP Affiliated QPAM 
to which the Audit Report applies, must certify in writing, under 
penalty of perjury, that the officer has reviewed the Audit Report and 
this exemption; that, such BNP Affiliated QPAM has addressed, 
corrected, remedied any noncompliance and inadequacy or has an 
appropriate written plan to address any inadequacy regarding the 
Policies and Training identified in the Audit Report. Such 
certification must also include the signatory's determination, that the 
Policies and Training in effect at the time of signing are adequate to 
ensure compliance with the conditions of this exemption and with the 
applicable provisions of ERISA and the Code;
    (8) The Risk Committee of BNP's Board of Directors is provided a 
copy of the Audit Report; and a senior executive officer of BNP must 
review the Audit Report for each BNP Affiliated QPAM and must certify 
in writing, under penalty of perjury, that such officer has reviewed 
the Audit Report;
    (9) Each BNP Affiliated QPAM provides its certified Audit Report, 
by regular mail to: Office of Exemption Determinations (OED), 200 
Constitution Avenue NW, Suite 400, Washington, DC 20210; or by private 
carrier to: 122 C Street NW, Suite 400, Washington, DC 20001-2109. This 
delivery must take place no later than 30 days following completion of 
the Audit Report. The Audit Report will be made part of the public 
record regarding this exemption. Furthermore, each BNP Affiliated QPAM 
must make its Audit Report unconditionally available, electronically or 
otherwise, for examination upon request by any duly authorized employee 
or representative of the Department, other relevant regulators, and any 
fiduciary of a Covered Plan;
    (10) Any engagement agreement with an auditor to perform the audit 
required under the terms of this exemption must be submitted to OED no 
later than two (2) months after the Conviction Date;
    (11) The auditor must provide the Department, upon request, for 
inspection and review, access to all the workpapers created and 
utilized in connection with the audit, provided such access and 
inspection is otherwise permitted by law; and
    (12) BNP must notify the Department of a change in the independent 
auditor no later than two (2) months after the engagement of a 
substitute or subsequent auditor and must provide an explanation for 
the substitution or change including a description of any material 
disputes between the terminated auditor and BNP;
    (j) As of May 30, 2018 and throughout the Exemption Period, with 
respect to any arrangement, agreement, or contract between a BNP 
Affiliated QPAM and a Covered Plan, the BNP Affiliated QPAM agrees and 
warrants to Covered Plans:
    (1) To comply with ERISA and the Code, as applicable with respect 
to such Covered Plan; 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;
    (2) To indemnify and hold harmless the Covered Plan for any actual 
losses resulting directly from: A BNP Affiliated QPAM's violation of 
ERISA's fiduciary duties, as applicable, and of the prohibited 
transaction provisions of ERISA and the Code, as applicable; a breach 
of contract by the QPAM; or any claim arising out of the failure of 
such BNP Affiliated 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 BNP Convictions. This condition applies only to actual 
losses caused by the BNP Affiliated QPAM's violations.
    (3) Not to require (or otherwise cause) the Covered Plan to waive, 
limit, or qualify the liability of the BNP Affiliated QPAM for 
violating ERISA or the Code or engaging in prohibited transactions;
    (4) Not to restrict the ability of such Covered Plan to terminate 
or withdraw from its arrangement with the BNP

[[Page 12605]]

Affiliated QPAM with the exception of reasonable restrictions, 
appropriately disclosed in advance, that are specifically designed to 
ensure equitable treatment of all investors in a pooled fund in the 
event such withdrawal or termination may have adverse consequences for 
all other investors. In connection with any such arrangements involving 
investments in pooled funds subject to ERISA entered into after the 
effective date of this exemption, the adverse consequences must relate 
to a lack of liquidity of the underlying assets, valuation issues, or 
regulatory reasons that prevent the fund from promptly redeeming an 
ERISA-covered plan's or IRA's investment, and such restrictions must be 
applicable to all such investors and be effective no longer than 
reasonably necessary to avoid the adverse consequences;
    (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; and
    (6) Not to include exculpatory provisions disclaiming or otherwise 
limiting liability of the BNP Affiliated QPAM for a violation of such 
agreement's terms. To the extent consistent with Section 410 of ERISA, 
however, this provision does not prohibit disclaimers for liability 
caused by an error, misrepresentation, or misconduct of a plan 
fiduciary or other party hired by the plan fiduciary who is independent 
of BNP and its affiliates, or damages arising from acts outside the 
control of the BNP Affiliated QPAM;
    (7) By November 29, 2018, each BNP Affiliated QPAM must provide a 
notice of its obligations under this Section I(j) to each Covered Plan. 
For prospective Covered Plans that enter into a written asset or 
investment management agreement with a BNP Affiliated QPAM on or after 
November 29, 2018, the BNP Affiliated QPAM will agree to its 
obligations under this Section I(j) in an updated investment management 
agreement between the BNP Affiliated QPAM and such clients or other 
written contractual agreement.
    (k) By July 29, 2018, each BNP Affiliated QPAM will provide a 
notice of the exemption, along with a separate summary describing the 
facts that led to the Convictions (the Summary), which have been 
submitted to the Department, and a prominently displayed statement (the 
Statement) (collectively, Initial Notice) that the BNP Convictions 
result in a failure to meet a condition in PTE 84-14, to each sponsor 
and beneficial owner of a Covered Plan, or the sponsor of an investment 
fund in any case where a BNP Affiliated QPAM acts as a sub-advisor to 
the investment fund in which such ERISA-covered plan and IRA invests, 
and to each entity that may be a BNP Related QPAM. Effective as of the 
date of the Initial Notice, all prospective Covered Plan clients that 
enter into a written asset or investment management agreement with a 
BNP Affiliated QPAM must receive a copy of the exemption, the Summary, 
and the Statement prior to, or contemporaneously with, the Covered 
Plan's receipt of a written asset management agreement from the BNP 
Affiliated QPAM. Disclosures may be delivered electronically;
    (l) The BNP Affiliated QPAMs must comply with each condition of PTE 
84-14, as amended, with the sole exception of the violations of Section 
I(g) of PTE 84-14 that are attributable to the BNP Convictions;
    (m)(1) By November 29, 2018, BNP Paribas designates a senior 
compliance officer (the Compliance Officer) who will be responsible for 
compliance with the Policies and Training requirements described 
herein. The Compliance Officer must conduct a review for the Exemption 
Period (the Exemption Review), to determine the adequacy and 
effectiveness of the implementation of the Policies and Training. With 
respect to the Compliance Officer, the following conditions must be 
met:
    (i) The Compliance Officer must be a professional who has extensive 
experience with, and knowledge of, the regulation of financial services 
and products, including under ERISA and the Code; and
    (ii) The Compliance Officer must have a direct reporting line to 
the highest-ranking corporate officer in charge of legal compliance for 
asset management;
    (2) With respect to the Exemption Review, the following conditions 
must be met:
    (i) The Exemption Review includes a review of the BNP QPAMs 
compliance with and effectiveness of the Policies and Training and of 
the following: any compliance matter related to the Policies or 
Training that was identified by, or reported to, the Compliance Officer 
or others within the compliance and risk control function (or its 
equivalent) during the previous year; the most recent Audit Report 
issued pursuant to this exemption or PTE 2015-06; any material change 
in the relevant business activities of the BNP Affiliated QPAMs; and 
any change to ERISA, the Code, or regulations related to fiduciary 
duties and the prohibited transaction provisions that may be applicable 
to the activities of the BNP Affiliated QPAMs;
    (ii) The Compliance Officer prepares a written report for the 
Exemption Review (an Exemption Report) that (A) summarizes his or her 
material activities during the Exemption Period; (B) sets forth any 
instance of noncompliance discovered during the Exemption Period, and 
any related corrective action; (C) details any change to the Policies 
or Training to guard against any similar instance of noncompliance 
occurring again; and (D) makes recommendations, as necessary, for 
additional training, procedures, monitoring, or additional and/or 
changed processes or systems, and management's actions on such 
recommendations;
    (iii) In the Exemption Report, the Compliance Officer must certify 
in writing that to his or her knowledge: (A) The report is accurate; 
(B) the Policies and Training are working in a manner which is 
reasonably designed to ensure that the Policies and Training 
requirements described herein are met; (C) any known instance of 
noncompliance during the Exemption Period and any related correction 
taken to date have been identified in the Exemption Report; and (D) the 
BNP Affiliated QPAMs have complied with the Policies and Training, and/
or corrected (or is correcting) any instances of noncompliance in 
accordance with Section I(h) above;
    (iv) The Exemption Report must be provided to appropriate corporate 
officers of BNP Paribas and each BNP Affiliated QPAM to which such 
report relates, and to the head of compliance and the General Counsel 
(or their functional equivalent) of the relevant BNP Affiliated QPAM; 
and the report must be made unconditionally available to the 
independent auditor described in Section I(i) above;
    (v) Each Exemption Review, including the Compliance Officer's 
written Exemption Report, must be completed within three (3) months 
following the end of the period to which it relates;
    (n) Each BNP Affiliated QPAM will maintain records necessary to 
demonstrate that the conditions of this exemption have been met, for 
six (6) years following the date of any transaction for which such BNP 
Affiliated QPAM relies upon the relief in the exemption;

[[Page 12606]]

    (o) During the Exemption Period, BNP Paribas: (1) Immediately 
discloses to the Department any Deferred Prosecution Agreement (a DPA) 
or Non-Prosecution Agreement (an NPA) with the U.S. Department of 
Justice, entered into by BNP Paribas or any of its affiliates (as 
defined in Section VI(d) of PTE 84-14) in connection with conduct 
described in Section I(g) of PTE 84-14 or section 411 of ERISA; and (2) 
immediately provides the Department any information requested by the 
Department, as permitted by law, regarding the agreement and/or conduct 
and allegations that led to the agreement;
    (p) By November 29, 2018, each BNP Affiliated QPAM, in its 
agreements with, or in other written disclosures provided to Covered 
Plans, will clearly and prominently inform Covered Plan clients of 
their right to obtain a copy of the Policies or a description (Summary 
Policies) which accurately summarizes key components of the BNP 
Affiliated QPAM's written Policies developed in connection with this 
exemption. With respect to this requirement, the description may be 
continuously maintained on a website, provided that such website link 
to the Policies or Summary Policies is clearly and prominently 
disclosed to each Covered Plan; and
    (q) A BNP Affiliated QPAM will not fail to meet the terms of this 
exemption, solely because a different BNP QPAM fails to satisfy a 
condition for relief described in Sections I(c), (d), (h), (i), (j), 
(k), (l), (n), or (p); or if the independent auditor described in 
Section I(i) fails a provision of the exemption other than the 
requirement described in Section I(i)(11), provided that such failure 
did not result from any actions or inactions of BNP Paribas or its 
affiliates.

Section III. Definitions

    (a)(1) The term ``BNP Paribas'' means BNP Paribas, S.A., the parent 
entity, and its subsidiary, BNP Paribas Securities Corp., but does not 
include any other subsidiaries or other affiliates.
    (2) The term ``BNP Paribas USA'' means BNP Paribas USA, Inc., and 
includes its New York branch;
    (b) The term ``BNP Affiliated QPAM'' means BNP Paribas Asset 
Management USA, Inc.; BNP Paribas Asset Management UK Limited; BNP 
Paribas Asset Management Singapore Limited; Bank of the West; First 
Hawaiian Bank; BancWest Investment Services, Inc.; and Bishop Street 
Capital Management Corp., to the extent these entities qualify as a 
``qualified professional asset manager'' (as defined in Section VI(a) 
\16\ of PTE 84-14) and rely on the relief provided by PTE 84-14, and 
with respect to which BNP Paribas is an ``affiliate'' (as defined in 
Part VI(d) of PTE 84-14). The term ``BNP Affiliated QPAM'' excludes BNP 
Paribas USA, the entity implicated in the criminal conduct that is the 
subject of the 2018 Conviction, and BNP Paribas, the entity implicated 
in the 2015 Convictions.
---------------------------------------------------------------------------

    \16\ 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 ``BNP Related QPAM'' means any future ``qualified 
professional asset manager'' (as defined in section VI(a) of PTE 84-14) 
that relies on the relief provided by PTE 84-14, and with respect to 
which BNP Paribas owns a direct or indirect five percent or more 
interest, but with respect to which BNP Paribas is not an ``affiliate'' 
(as defined in Section VI(d)(1) of PTE 84-14).
    (d) The term ``BNP Convictions'' mean the 2015 Convictions against 
BNP Paribas and the 2018 Conviction against BNP Paribas USA. More 
specifically:
    (1) The ``2015 Convictions'' refers to the judgments of conviction 
against BNP Paribas in: (A) case number 14-cr-00460 (LGS) in the United 
States District Court for the Southern District of New York for 
conspiracy to commit an offense against the United States in violation 
of Title 18, United States Code, Section 371, by conspiring to violate 
the International Emergency Economic Powers Act, codified at Title 50, 
United States Code, Section 1701 et seq., and regulations issued 
thereunder, and the Trading with the Enemy Act, codified at Title 50, 
United States Code Appendix, Section 1 et seq., and regulations issued 
thereunder; and (B) case number 2014 NY 051231 in the Supreme Court of 
the State of New York, County of New York for falsifying business 
records in the first degree, in violation of Penal Law Sec.  175.10, 
and conspiracy in the fifth degree, in violation of Penal Law Sec.  
105.05(1).
    (2) The term ``2018 Conviction'' refers to the judgment of 
conviction against BNP Paribas USA for violation of the Sherman 
Antitrust Act, 15 U.S.C. 1, which is scheduled to be entered in the 
United States District Court for the Southern District of New York (the 
District Court) (case number 1:18-cr-61-JSR, in connection with BNP 
Paribas USA for certain foreign exchange misconduct (the FX 
Misconduct).
    (e) The term ``Conviction Date'' means May 30, 2018, the date that 
a judgment of Conviction against BNP Paribas USA is entered by the 
District Court in connection with the 2018 Conviction;
    (f) The term ``Covered Plan'' means a plan subject to Part IV of 
Title I of ERISA (an ``ERISA-covered plan'') or a plan subject to 
section 4975 of the Code (an ``IRA''), in each case, with respect to 
which a BNP Affiliated QPAM relies on PTE 84-14, or with respect to 
which a BNP Affiliated QPAM (or any BNP Paribas affiliate) has 
expressly represented that the manager qualifies as a QPAM or relies on 
the QPAM class exemption (PTE 84-14). A Covered Plan does not include 
an ERISA-covered plan or IRA to the extent the BNP Affiliated QPAM has 
expressly disclaimed reliance on QPAM status or PTE 84-14 in entering 
into a contract, arrangement, or agreement with the ERISA-covered plan 
or IRA.
    (g) The term ``Exemption Period'' means the period from May 30, 
2018 until the earlier of: (1) May 29, 2019 or (2) the date of final 
agency action made by the Department in connection with a new exemption 
application submitted by BNP Paribas for the covered transactions 
described herein.
    (h) The term ``Plea Agreement'' means the agreement that was 
entered into on January 19, 2018, as between BNP Paribas USA and the 
United States Department of Justice, and filed in the District Court, 
involving the FX Misconduct.

    Signed at Washington, DC, on March 19, 2018.
Lyssa E. Hall,
Director, Office of Exemption Determinations, Employee Benefits 
Security Administration, U.S. Department of Labor.
[FR Doc. 2018-05867 Filed 3-21-18; 8:45 am]
BILLING CODE 4510-29-P