Proposed Exemption From Certain Prohibited Transaction Restrictions Credit Suisse Group AG (CSG) and Its Current and Future Affiliates, Including Credit Suisse AG (CSAG) (Collectively, Credit Suisse or the Applicant) Located in Zurich, Switzerland, 33966-33979 [2019-15069]

Agencies

• Employee Benefits Security Administration
• DEPARTMENT OF LABOR

[Federal Register Volume 84, Number 136 (Tuesday, July 16, 2019)]
[Notices]
[Pages 33966-33979]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-15069]


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DEPARTMENT OF LABOR

Employee Benefits Security Administration

[Exemption Application No. D-11962]


Proposed Exemption From Certain Prohibited Transaction 
Restrictions Credit Suisse Group AG (CSG) and Its Current and Future 
Affiliates, Including Credit Suisse AG (CSAG) (Collectively, Credit 
Suisse or the Applicant) Located in Zurich, Switzerland

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 temporary five-year 
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 exemption is granted, certain entities with specified 
relationships to CSAG will not be precluded from relying on the 
exemptive relief provided by Prohibited Transaction Class Exemption 84-
14.

DATES: If granted, this exemption will be effective for five years 
following the date exemptive relief is no longer available under PTE 
2015-14.
    Written comments and requests for a public hearing on the proposed 
exemption should be submitted to the Department by August 30, 2019.

ADDRESSES: 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-11962 or via private delivery 
service or courier to the Employee Benefits Security Administration 
(EBSA), Office of Exemption Determinations, U.S. Department of Labor, 
122 C St. NW, Suite 400, Washington, DC 20001. Attention: Application 
No. D-11962. Interested persons may also submit comments and/or hearing 
requests to EBSA via email to [email protected] or by FAX to (202) 693-
8474, or online through https://www.regulations.gov. Any such comments 
or requests should be sent 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 Disclosure Room of the 
Employee Benefits Security Administration, U.S. Department of Labor, 
Room N-1515, 200 Constitution Avenue NW, Washington, DC 20210. See 
SUPPLEMENTARY INFORMATION below for additional information regarding 
comments.

FOR FURTHER INFORMATION CONTACT: Ms. Blessed Chuksorji-Keefe of the 
Department at (202) 693-8402. (This is not a toll-free number.)

SUPPLEMENTARY INFORMATION:

Comments

    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.

    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

[[Page 33967]]

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

Background

    On May 19, 2014, CSAG entered a guilty plea for assisting U.S. 
citizens in federal income tax evasion. On November 21, 2014, the 
District Court entered a judgment of conviction (the Conviction) 
against CSAG. As a result of the Conviction, QPAMs with certain 
corporate relationships to CSAG, as well as its client plans that are 
subject to Part 4 of Title I of ERISA (ERISA--covered plans) or section 
4975 of the Code (IRAs), could no longer rely on PTE 84-14 without an 
individual exemption issued by the Department. As described below, in 
order to protect plans and IRAs managed by CS-related QPAMs, the 
Department issued a temporary one-year exemption allowing Credit Suisse 
Affiliated and Related QPAMs to continue to rely on PTE 84-14, if 
numerous conditions were met. Prior to the expiration of that 
exemption, the Department issued another exemption allowing Credit 
Suisse Affiliated and Related QPAMs to continue to rely on PTE 84-14 
for a period of four years and ten years respectively, if numerous 
conditions were met. On June 14, 2018, the Applicant filed an exemption 
request for Credit Suisse Affiliated asset managers to continue to rely 
on PTE 84-14 after the November 20, 2019, expiration of the four-year 
exemption.
    The Department is proposing this exemption to protect plans and 
IRAs that use Credit Suisse Affiliated QPAMs, from the costs and 
expenses that may arise if those asset managers are no longer able to 
rely on the relief provided by PTE 84-14.
    This proposed five-year exemption, if granted, provides relief from 
certain of the restrictions set forth in sections 406 and 407 of ERISA. 
No relief or waiver of a violation of any other law is provided by the 
exemption. The relief in this proposed five-year exemption would 
terminate immediately if, among other things, an entity within the 
Credit Suisse corporate structure is convicted of any crime covered by 
Section I(g) of PTE 84-14 (other than the Conviction during the 
effective period of the proposed five-year exemption. While such an 
entity could apply for a new exemption in that circumstance, the 
Department is not obligated to grant a requested exemption.
    The terms of this proposed five-year 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 the Applicant.
    When interpreting and implementing this exemption, the Applicant 
and the Credit Suisse Affiliated QPAMs should resolve any ambiguities 
in light of the exemption's protective purposes. To the extent 
additional clarification is necessary, these persons or entities should 
contact EBSA's Office of Exemption Determinations, at 202-693-8540.

Summary of Facts and Representations \1\
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    \1\ The Summary of Facts and Representations is based on the 
Applicant's representations, unless indicated otherwise.
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The Applicant(s)

    1. Credit Suisse Group AG (CSG) is a publicly-traded corporation 
headquartered in Zurich, Switzerland. CSG and its affiliates (which are 
collectively referred to herein as the Applicant or Credit Suisse) 
operate in about 50 countries and currently have approximately 46,720 
employees. As of December 31, 2017, CSG and its consolidated 
subsidiaries had total balance sheet assets of CHF 796 billion, and 
total shareholders' equity of CHF 42 billion (approximately $817 
billion and $43 billion, respectively).
    2. CSG owns a 100% interest in Credit Suisse AG (CSAG). CSAG 
operates as a bank, in Switzerland and abroad. CSAG currently has two 
affiliates: CSAM LLC and CSAM Ltd. that manage the assets of ERISA-
covered plans on a discretionary basis. CSAG also owns a five percent 
or more interest in certain other entities that may provide investment 
management services to plans (the CS Related QPAMs), but that are not 
affiliates of CSAG.

ERISA and Code Prohibited Transactions and PTE 84-14

    3. The rules set forth in section 406 of ERISA and section 
4975(c)(1) of the Code proscribe certain ``prohibited transactions'' 
between plans and related parties with respect to those plans. Under 
ERISA such parties are known as ``parties in interest.'' Under section 
3(14) of ERISA, parties in interest with respect to a plan include, 
among others, the plan fiduciary, a sponsoring employer of the plan, a 
union whose members are covered by the plan, service providers with 
respect to the plan, and certain of their affiliates.\2\ The prohibited 
transaction provisions under section 406(a) of ERISA and 4975(c)(1) of 
the Code prohibit, in relevant part, sales, leases, loans or the 
provision of services between a party in interest and a plan (or an 
entity whose assets are deemed to constitute the assets of a plan), as 
well as the use of plan assets by or for the benefit of, or a transfer 
of plan assets to, a party in interest.\3\ 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).
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    \2\ Under the Code such parties, or similar parties, are 
referred to as ``disqualified persons.''
    \3\ The prohibited transaction provisions also include certain 
fiduciary prohibited transactions under section 406(b) of ERISA and 
4975(c)(1)(E) and (F) of the Code. These include transactions 
involving fiduciary self-dealing, fiduciary conflicts of interest, 
and kickbacks to fiduciaries. PTE 84-14 provides only very narrow 
conditional relief for transactions described in Section 406(b) of 
ERISA.
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    4. Prohibited Transaction Exemption 84-14 (PTE 84-14) \4\ exempts 
certain prohibited transactions between a party in interest and an 
``investment fund'' (as defined in Section VI(b) of PTE 84-14) \5\ 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.\6\
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    \4\ 49 FR 9494 (March 13, 1984), as corrected at 50 FR 41430 
(October 10, 1985), as amended at 70 FR 49305 (August 23, 2005), and 
as amended at 75 FR 38837 (July 6, 2010).
    \5\ 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.
    \6\ See 75 FR 38837, 38839 (July 6, 2010).
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    5. 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

[[Page 33968]]

plans, if that entity or an ``affiliate'' \7\ 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 criminal activity described in that section. 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.\8\
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    \7\ 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.''
    \8\ See 47 FR 56945, 56947 (December 21, 1982).
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The Guilty Plea and the Conviction

    6. On May 19, 2014, in the U.S. District Court for the Eastern 
District of Virginia (the District Court),\9\ the U.S. Department of 
Justice charged CSAG with, and CSAG pled guilty to, one criminal count 
of conspiracy to violate Code section 7206(2).\10\ As described in 
further detail below, the charging documents cite the Applicant and its 
subsidiaries, Credit Suisse Fides and Clariden Leu Ltd., for willfully 
aiding, assisting in, procuring, counseling, and advising the 
preparation and presentation of false income tax returns and other 
documents to the Internal Revenue Service of the Treasury Department 
(IRS), for decades, prior to and through approximately 2009.
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    \9\ United States of America v. Credit Suisse AG, Case Number 
1:14-cr-188-RBS.
    \10\ Section 7206(2) of the Code prohibits willfully aiding, 
assisting, procuring, counseling, or advising the preparation or 
presentation of false income tax returns. Section 371 of Title 18 of 
the United States Code generally prohibits two or more persons from 
conspiring either to commit any offense against the United States or 
to defraud the United States.
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    7. On May 19, 2014, pursuant to a plea agreement (the Plea 
Agreement), CSAG entered a guilty plea for assisting U.S. citizens in 
federal income tax evasion. On November 21, 2014, the District Court 
entered a judgment of conviction (the Conviction). As part of its 
sentence, CSAG agreed to pay a total of $2.815 billion, which included: 
(a) A criminal fine of $1.33 billion; (b) restitution to the IRS of 
$0.67 billion; (c) a civil penalty of $715 million to New York State; 
and (d) a civil penalty of $100 million to the Federal Reserve.
    8. As a result of the Conviction, QPAMs with certain corporate 
relationships to CSAG, as well as its client plans that are subject to 
Part 4 of Title I of ERISA (ERISA-covered plans) or section 4975 of the 
Code (IRAs), cannot rely on PTE 84-14 without an individual exemption 
issued by the Department.

Prior Exemptions and the Public Hearing

    9. On September 3, 2014, the Department published a proposed 
exemption (the First Proposed Exemption) for certain entities with 
specified relationships to CSAG, to continue to rely upon the relief 
provided by PTE 84-14, notwithstanding the Conviction.\11\ The 
Department received ten comments and four requests for a hearing 
regarding the First Proposed Exemption.
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    \11\ See 79 FR 52365.
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    10. The requested hearing could not be held prior to the date of 
the Conviction, so, in order to protect plans and IRAs managed by CS-
related QPAMs, the Department issued a temporary exemption.\12\ The 
temporary exemption allowed Credit Suisse asset managers to continue to 
rely on PTE 84-14, for one year following the date of the Conviction, 
while the Department determined whether further relief would be 
protective of affected plans and IRAs.
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    \12\ See 79 FR 68716.
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    11. The public hearing (requested by commenters to the First 
Proposed Exemption) was held on January 15, 2015. The Department 
considered all the testimony and information provided at the hearing, 
and all the issues raised by the commenters, and thereafter published 
the Second Final Exemption.\13\ The Second Final Exemption addressed 
all the material information and issues submitted in connection with 
the hearing.
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    \13\ The proposal to the Second Final Exemption was published on 
November 18, 2014, at 79 FR 68712.
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Current Exemption Request

    12. On June 14, 2018, the Applicant filed an exemption request for 
Credit Suisse Affiliated asset managers to continue to rely on PTE 84-
14 after the November 20, 2019, expiration of the Second Final 
Exemption. The request was for an exemption modeled on PTE 2015-14, 
with certain exceptions. On August 24, 2018, the Applicant submitted a 
letter in further support of its request (the CSAG Letter). In the CSAG 
Letter, the Applicant requested that the Department ``not make small, 
nonmaterial language changes [to the conditions of this exemption] that 
do not change the substance of the provision[s] but nonetheless will 
require changes to Credit Suisse's policies and training, and 
explanations to its clients.'' The Applicant stated further that while 
``it understands the Department's interest in consistency, this goal 
should not override the expense, effort and confusion for clients that 
such changes would cause.'' The Applicant notes that the facts 
underlying the Second Final Exemption have not changed, and the 
Department already found the Second Final Exemption to be in the 
interest of and protective of affected plans and IRAs, and 
administratively feasible.
    13. In developing administrative exemptions under Section 408(a) of 
ERISA, the Department seeks to implement its statutory directive to 
grant only exemptions that are appropriately protective of affected 
plans and IRAs and in their interest. In discharging this obligation, 
the Department will sometimes impose conditions that depart from those 
provided in older exemptions based on the Department's experience with 
those exemptions, the Department's conclusion that new or revised 
conditions will better serve the interests of affected plans and IRAs, 
similar changes in more recent exemptions applicable to other firms 
providing the same services, and other factors. Many of the conditions 
of this exemption are new or revised, relative to the Second Final 
Exemption, reflecting the Department's current views on how best to 
ensure that Covered Plans are adequately protected. In general, the 
revised conditions are the same as or similar to conditions imposed in 
other recent Section I(g) exemptions. The distinctions between the 
conditions in the Second Final Exemption and this proposed exemption 
are material.
    For example, the Second Final Exemption requires that ``(t)he 
Credit Suisse Affiliated QPAMs and the Credit Suisse Related QPAMs did 
not directly receive compensation in connection with the criminal 
conduct of Credit Suisse AG that is the subject of the Conviction.'' 
CSAG states that this condition is ``substantively the same'' as a 
parallel provision in the Department's most recent line of QPAM Section 
I(g) exemptions. However, the analogous provision in those exemptions, 
and in this proposed exemption further require that the CS Affiliated 
QPAMs and the CS Related QPAMs must not have knowingly received 
indirect compensation in connection with the

[[Page 33969]]

criminal conduct of CSAG that is the subject of the Conviction.
    As another example, Section I(g) of PTE 2015-14 provides that, 
``Each Credit Suisse Affiliated QPAM will ensure that it does not 
engage or employ any person involved in the criminal conduct that 
underlies the Conviction in connection with the transactions involving 
any `investment fund' (as defined in PTE 84-14) subject to ERISA and 
managed by such Credit Suisse Affiliated QPAMs.'' Although CSAG asserts 
that Section I(g) of the Second Final Exemption is ``substantively the 
same'' as the analogous provision in the Department's most recent line 
of cases, the analogous condition in those exemptions, and in this 
proposed exemption, contains a more expansive prohibition against 
hiring individuals engaging in wrongful misconduct, requiring that, 
``(t)he CS Affiliated QPAMs will not employ or knowingly engage any of 
the individuals that `participated in' the criminal conduct of CSAG 
that is the subject of the Conviction, where `participate in' refers 
not only to active participation in the criminal conduct of CSAG that 
is the subject of the Conviction, but also to knowing approval of the 
criminal conduct, or knowledge of such conduct without taking active 
steps to prohibit such conduct, including reporting the conduct to such 
individual's supervisors, and to the Board of Directors.''
    Other meaningful distinctions between the Second Final Exemption 
and the Department's most recent line of QPAM Section I(g) exemptions 
are described below. In all cases, the revised conditions of this 
exemption are consistent with the record provided by the Applicant, and 
the Department's understanding of the facts attributable to the 
Conviction. CSAG has not demonstrated that the revised conditions would 
confuse fiduciaries of Covered Plans, or would cause unnecessary 
expense to CSAG and/or its QPAMs, as it asserts.
    14. A summary of the proposed exemption appears below, and is 
organized into several parts. The first part describes the conditions 
in this proposed exemption that are materially similar to the 
conditions in CS's soon-to-expire exemption (i.e., the Second Final 
Exemption or PTE 2015-14). The second part summarizes the conditions in 
this proposed exemption that are new or enhanced, relative to the 
Second Final Exemption. The third part describes the Applicant's 
request that certain exceptions be made to one of the conditions 
described in the Second Final Exemption. The fourth part summarizes 
this proposed exemption's audit requirement, and the Applicant's 
comment regarding the necessity of the audit. The remaining parts 
summarize the Department's findings.
    I. Conditions in this Proposed Exemption that are Substantially 
Similar to Conditions in CS's Second Final Exemption.
    15. This proposed exemption requires that any failure of a CS 
Affiliated QPAM to satisfy Section I(g) of PTE 84-14 arose solely from 
the Conviction.
    16. Further, this proposed exemption requires that each CS 
Affiliated QPAM continue to maintain, adjust or immediately implement 
and follow written Policies designed to protect the interests of plans 
and IRAs in conformity with fiduciary standards.\14\ The written 
Policies cover a range of issues, from asset management decisions of 
the CS Affiliated QPAMs to the CS Affiliated QPAM's compliance with 
ERISA's fiduciary duties. The proposed exemption requires the 
continuation of a program of training for each Credit Suisse Affiliated 
QPAM's relevant legal, compliance, management and internal audit 
personnel. In addition, the CS Affiliated QPAMs must promptly address 
any determination as to the adequacy of the Policies and Training and 
the auditor's recommendations (if any) on strengthening the Policies 
and Training of the respective CS Affiliated QPAM. Finally, each CS 
Affiliated QPAM must maintain for six years the records necessary to 
demonstrate that the conditions of this proposed five-year exemption 
have been met.
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    \14\ The Department notes that a CS Affiliated QPAM established 
after November 20, 2019 would need to immediately implement and 
follow written Policies, where CS Affiliated QPAMs established prior 
to that date must have already immediately implemented and followed 
the written Policies.
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    II. Conditions in this Proposed Exemption that Contain Material 
Distinctions with the Second Final Exemption.
    17. The Second Final Exemption provided that the CS Affiliated and 
Related QPAMs did not participate in the criminal conduct that was the 
subject of the Conviction. This proposed exemption adds clarifying 
language to that condition, consistent with the record provided by the 
Applicant. Accordingly, the proposed exemption mandates that the CS 
Affiliated QPAMs and the CS Related QPAMs (including their officers, 
directors, agents other than CSAG, employees of such QPAMs, and certain 
CSAG employees described below) did not know of, have reason to know 
of, or ``participate in'' the criminal conduct of CSAG that is the 
subject of the Conviction. The proposed exemption clarifies further 
that ``participate in'' refers not only to active participation in the 
criminal conduct of CSAG, but also to knowing approval of the criminal 
conduct, or knowledge of such conduct without taking active steps to 
prohibit such conduct, including reporting the conduct to supervisors, 
and to the Board of Directors. In this regard, unless the individual 
reasonably believed that his or her initial report was given an 
appropriate response within a reasonable time, the individual must have 
further reported the criminal conduct to the person or persons the 
individual reasonably expected would carry out the appropriate 
response. Whether an individual reasonably believed that an appropriate 
response was taken turns on the facts and circumstances.
    18. The Second Final Exemption provided that the CS Affiliated and 
Related QPAMs did not directly receive compensation in connection with 
the criminal conduct. This proposed exemption expands that prohibition 
in a manner that is consistent with the record provided by the 
Applicant, and the Department's understanding of the facts attributable 
to the Conviction. In addition to the Second Final Exemption 
requirement that the CS Affiliated and Related QPAMs (including their 
officers, directors, agents other than CSAG, employees of such QPAMs, 
and certain CSAG employees described below) did not directly receive 
compensation in connection with the criminal conduct, this proposed 
exemption further specifies that the CS Affiliated QPAMs and the CS 
Related QPAMs did not knowingly receive indirect compensation in 
connection with the criminal conduct of CSAG.
    19. The Second Final Exemption provided that criminal conduct of 
CSAG that is the subject of the Conviction did not directly or 
indirectly involve the assets of an ERISA-covered Plan or IRA. Whereas 
that condition in the Second Final Exemption focused on the criminal 
conduct of CSAG, this proposed exemption contains a condition that 
focuses on the conduct of the CS Affiliated and Related QPAMs. This 
proposed exemption requires that no CS Affiliated QPAM or CS Related 
QPAM exercised authority over the assets of an ERISA-covered plan or 
IRA in a manner that it knew or should have known would: Further 
criminal conduct that is the subject of the Conviction; or cause the CS 
Affiliated QPAM or CS Related QPAM, its affiliates, or related parties 
to directly or indirectly profit

[[Page 33970]]

from the criminal conduct that is the subject of the Conviction.
    20. The Second Final Exemption required that each Credit Suisse 
Affiliated QPAM ensure that none of its employees or agents, if any, 
that were involved in the criminal conduct underlying the Conviction 
will engage in transactions on behalf of any investment fund managed by 
the QPAM. This proposed exemption expands that prohibition, in a manner 
that is consistent with the record provided by the Applicant, and the 
Department's understanding of the facts attributable to the Conviction. 
In this regard, this proposed exemption prohibits each CS Affiliated 
QPAM from employing or knowingly engaging any of the individuals that 
``participated in'' the criminal conduct of CSAG that is the subject of 
the Conviction, where ``participated in'' refers not only to active 
participation in the criminal conduct of CSAG, but also to knowing 
approval of the criminal conduct, or knowledge of such conduct without 
taking active steps to prohibit such conduct, including reporting the 
conduct to such individual's supervisors, and to the Board of 
Directors. In this regard, unless the individual reasonably believed 
that his or her initial report was given an appropriate response within 
a reasonable time, the individual must further report the criminal 
conduct to the person or persons the individual reasonably expected 
would carry out the appropriate response. Whether an individual 
reasonably believed that an appropriate response was taken turns on the 
facts and circumstances.
    21. The Second Final Exemption provided that CSAG would not provide 
any fiduciary services to ERISA-covered Plans or IRAs, except in 
connection with securities lending services of the New York branch of 
CSAG, or act as a QPAM. this proposed exemption mandates instead that 
CSAG will 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, other than with respect to employee benefit plans sponsored for 
its own employees or employees of an affiliate, or in connection with 
securities lending services of the New York branch of CSAG.
    22. The Second Final Exemption requires that the CS Affiliated 
QPAMs agree to certain conduct and standards, and to refrain from 
certain conduct, in their dealings with ERISA-covered plans and 
IRAs.\15\ This condition was intended to ensure that, when an ERISA-
covered plan or IRA entered into an asset management agreement with a 
CS Affiliated QPAM in reliance on the manager's qualification as a 
QPAM, the plan or IRA could expect adherence to basic fiduciary norms 
and standards of fair dealing, notwithstanding the Conviction. The 
condition was further intended to ensure that the ERISA-covered plan or 
IRA could disengage from that relationship, without undue injury.
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    \15\ Specifically, condition (k) of the Second Final Exemption 
requires that, each Credit Suisse Affiliated QPAM agrees: (1) To 
comply with ERISA and the Code, as applicable with respect to such 
ERISA-covered plan or IRA, and refrain from engaging in prohibited 
transactions that are not otherwise exempt; (2) not to waive, limit, 
or qualify the liability of the Credit Suisse Affiliated QPAM for 
violating ERISA or the Code or engaging in prohibited transactions; 
(3) not to require the ERISA-covered plan or IRA (or sponsor of such 
ERISA-covered plan or beneficial owner of such IRA) to indemnify the 
Credit Suisse Affiliated QPAM for violating ERISA or engaging in 
prohibited transactions, except for violations or prohibited 
transactions caused by an error, misrepresentation, or misconduct of 
a plan fiduciary or other party hired by the plan fiduciary who is 
independent of Credit Suisse AG; (4) not to restrict the ability of 
such ERISA-covered plan or IRA to terminate or withdraw from its 
arrangement with the Credit Suisse Affiliated QPAM, with the 
exception of reasonable restrictions, appropriately disclosed in 
advance, that are specifically designed to ensure equitable 
treatment of all investors in a pooled fund in the event such 
withdrawal or termination may have adverse consequences for all 
other investors, provided that such restrictions are applied 
consistently and in like manner to all such investors; and (5) not 
to impose any fees, penalties, or charges for such termination or 
withdrawal with the exception of reasonable fees, appropriately 
disclosed in advance, that are specifically designed to prevent 
generally recognized abusive investment practices or specifically 
designed to ensure equitable treatment of all investors in a pooled 
fund in the event such withdrawal or termination may have adverse 
consequences for all other investors, provided that such fees are 
applied consistently and in like manner to all such investors.
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    This proposed exemption enhances those important protections. 
Specifically, each CS Affiliated QPAM must not only agree, but must 
also warrant, to Covered Plans: (a) To comply with ERISA and the Code, 
as applicable with respect to the Covered Plan; (b) not to require (or 
otherwise cause) the Covered Plan to waive, limit, or qualify the 
liability of the CS Affiliated QPAM for violating ERISA or the Code or 
engaging in prohibited transactions; (c) not to restrict the ability of 
the Covered Plan to terminate or withdraw from its arrangement with the 
CS Affiliated QPAM; (d) not to impose any fees, penalties, or charges 
for such termination or withdrawal with the exception of reasonable 
fees, appropriately disclosed in advance; (e) not to include 
exculpatory provisions disclaiming or otherwise limiting liability of 
the CS Affiliated QPAMs for a violation of the agreement's terms; (f) 
to indemnify and hold harmless the Covered Plan for any actual losses 
resulting directly from a CS Affiliated QPAM's violation of ERISA's 
fiduciary duties, as applicable; and (g) to provide a notice of its 
obligations to each Covered Plan. Further, this proposed exemption 
requires that by January 21, 2020, each CS Affiliated QPAM is required 
to provide a notice of the five-year exemption, along with a separate 
summary describing the facts that led to the Conviction.
    23. The Second Final Exemption required that the CS Affiliated QPAM 
comply with each condition of PTE 84-14, as amended, with the sole 
exception of the violation of Section I(g) of PTE 84-14 that is 
attributable to the Conviction. This proposed exemption clarifies that 
if, during the Exemption Period, an entity within the Credit Suisse 
corporate structure is convicted of a crime described in Section I(g) 
of PTE 84-14, (other than the Conviction), including a conviction in a 
foreign jurisdiction for a crime described in Section I(g) of PTE 84-
14, relief in this proposed exemption would terminate immediately.
    24. Unlike the Second Final Exemption, this proposed exemption 
requires CSAG to immediately disclose to the Department any Deferred 
Prosecution Agreement or Non-Prosecution Agreement that Credit Suisse 
Group AG or CSAG or any affiliate enters into with the U.S Department 
of Justice. This proposed exemption also requires that, by May 20, 
2020, CSAG must designate a senior compliance officer (the Compliance 
Officer) who will be responsible for compliance with the Policies and 
Training requirements described herein. Further, by May 20, 2020, each 
CS Affiliated QPAM, in its agreements with, or in other written 
disclosures provided to Covered Plans, must clearly inform Covered Plan 
clients of their right to obtain a copy of the Policies or a 
description which accurately summarizes key components of the CS 
Affiliated QPAM's Policies developed in connection with this proposed 
exemption.
    25. Finally, under this proposed exemption, a Credit Suisse 
Affiliated QPAM will fail to meet the terms of this exemption if: (a) A 
different Credit Suisse Affiliated QPAM (or a Credit Suisse Related 
QPAM) knew of, had reason to know of, or participated in the criminal 
conduct of CSAG that is the subject of the Conviction; (b) a CS 
Affiliated QPAM or a CS Related QPAM (including their officers, 
directors, agents other than CSAG, and employees of such QPAMs) 
received direct

[[Page 33971]]

compensation, or knowingly receive indirect compensation, in connection 
with the criminal conduct of CSAG that is the subject of the 
Conviction; (c) any failure of a CS Affiliated QPAM to satisfy Section 
I(g) of PTE 84-14 arose from a conviction other than the Conviction; 
(d) a CS Affiliated QPAM or a CS Related QPAM exercised authority over 
the assets of an ERISA-covered plan or an IRA in a manner that it knew 
or should have known would: Further criminal conduct that is the 
subject of the Conviction; or cause the CS Affiliated QPAM, its 
affiliates, or related parties to directly or indirectly profit from 
the criminal conduct that is the subject of the Conviction; (e) with 
limited exceptions, CSAG acts 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; (f) 
CSAG fails to designate a Compliance Officer, or if the Compliance 
office fails to meet his or her responsibilities under the exemption; 
and (g) CSAG fails to immediately disclose to the Department any 
Deferred Prosecution Agreement (a DPA) or Non-Prosecution Agreement (an 
NPA) Credit Suisse Group AG or CSAG or any affiliate enters into with 
the U.S. Department of Justice, to the extent such DPA or NPA relates 
to the conduct described in Section I(g) of PTE 84-14 or section 411 of 
ERISA, or (h) if CSAG fails to immediately provide the Department any 
information requested by the Department, as permitted by law, regarding 
any agreement under subparagraph (g) and/or the conduct and allegations 
that led to the agreement.
    III. Applicant's Request for Exceptions to Section I(f) of CS's 
Second Final Exemption.
    26. Section I(f) of the Second Final Exemption provides, in 
relevant part, that a CS Affiliated QPAM will not use its authority or 
influence to direct an investment fund to enter into any transaction 
with CSAG, or engage CSAG to provide any service to such investment 
fund, for a direct or indirect fee borne by the investment fund.\16\ 
The Applicant requests that the Department add three exceptions to this 
proposed condition:
---------------------------------------------------------------------------

    \16\ In its entirety, Section I(f) of the Second Final Exemption 
provides that, ``A Credit Suisse Affiliated QPAM will not use its 
authority or influence to direct an ``investment fund'' (as defined 
in Section VI(b) of PTE 84-14) that is subject to ERISA and managed 
by such Credit Suisse Affiliated QPAM to enter into any transaction 
with Credit Suisse AG or engage Credit Suisse AG to provide 
additional services to such investment fund, for a direct or 
indirect fee borne by such investment fund regardless of whether 
such transactions or services may otherwise be within the scope of 
relief provided by an administrative or statutory exemption[.]''
---------------------------------------------------------------------------

    Request 1. CSAG Should Be Permitted to Act as Local Sub-Custodian.
    27. The Applicant notes that Section I(f) of the Second Final 
Exemption precludes a CS Affiliated QPAM from investing plan assets in 
a market where CSAG or its branch or affiliate might serve as the sub-
custodian CSAG. In this regard, this condition might not be met if a CS 
Affiliated QPAM invests plan assets in a market where CSAG or its 
branch or affiliate might serve as the sub-custodian, even where the CS 
Affiliated QPAM has no role in selecting the global custodian, or the 
local sub-custodians in its network. According to the Applicant, 
Section I(f) of the Second Final Exemption may only be met by 
prohibiting plans managed by the CS Affiliated QPAMs from investing in 
that market. In that event, the Applicant asserts that Plans that want 
to invest with the CS Affiliated QPAMs would be deprived of the ability 
to choose from a full slate of investment products, and would be 
compelled to invest in a different product, or with an alternate 
investment manager, which could have an adverse impact on investment 
performance.
    28. The Applicant notes that the Department previously expressed 
concern that sub-custodian arrangements had ERISA section 406(b) 
implications, and PTE 84-14 only provides relief from section 406(a) of 
ERISA.\17\ In the Applicant's view, a CS Affiliated QPAM's investment 
in a market where an unaffiliated global custodian has selected a CSAG 
affiliate as its local subcustodian does not automatically result in a 
violation of section 406(b) of ERISA. The Applicant states it should be 
capable of factually demonstrating when sub-custodial arrangements do 
not violate ERISA section 406(b).
---------------------------------------------------------------------------

    \17\ In granting the Second Final Exemption, the Department 
expressed concern, in relation to Section I(f), that a CS Affiliated 
QPAM might effectively use its ``authority or influence to direct'' 
an investment fund to ``enter into'' a ``transaction with'' Credit 
Suisse AG or ``provide additional services, for a fee borne by'' the 
investment fund.
---------------------------------------------------------------------------

    29. The Applicant states that preventing a plan from investing in 
markets covered by its chosen strategy and chosen investment manager, 
could have an adverse impact on investment performance in that 
strategy. For ERISA-covered plans, there are four primary global 
custodians. None of these are affiliated with CSAG. The global 
custodian may not have a local custodian in its network in every market 
where an investment manager trades on behalf of its clients. In such 
instances, the global custodian will engage a local sub-custodian. The 
global custodian's choice of local sub-custodian is based on factors 
including potential local sub-custodians' credit, efficiency in trade 
processing, back office functions, and tax reclaims processing. None of 
these factors are related to asset management. When a plan's custodian 
uses more than one local sub-custodian in a market, the decision of the 
plan's custodian on how to divide its custody clients among those local 
subcustodians is entirely its own.
    30. The Applicant requests that Section I(d) of this proposed 
exemption contain an exception that permits CSAG and its branches and 
affiliates to serve as local sub-custodians.
    Department's Response to Request that CSAG Should Be Permitted to 
Act as Local Sub-Custodian.
    31. The Department is tentatively persuaded that, in narrow 
circumstances, plans and IRAs would benefit from the broader range of 
investment options that may result from CSAG affiliates being permitted 
to serve as local sub-custodians. However, given the magnitude of 
CSAG's fraudulent misconduct, the Department is not proposing that CSAG 
itself or its branches be permitted to act as local sub-custodians in 
these arrangements. Accordingly, Section I(d) of this proposed 
exemption contains an exception that permits CSAG affiliates to serve 
as a local sub-custodian, if the global custodian and the sub-custodian 
are selected by someone other than a CSAG-related entity. This proposed 
exemption requires each CS Affiliated QPAM to have policies and 
procedures in place to ensure that its asset management decisions are 
not made with any consideration of the fee a related local sub-
custodian may receive. Further, the auditor must review these policies 
and procedures and test a representative sample of transactions 
involving CSAG affiliates that serve as a local sub-custodian.
    Request 2. CSAG Should be Permitted to Provide Support Services to 
CS Affiliated QPAMs.
    32. The Applicant notes that Section I(f) of the Second Final 
Exemption may prevent CSAG from providing services supporting the 
operations of the CS Affiliated QPAM, without cost to an ERISA-covered 
plan or IRA (e.g., at the QPAM's own expense). These services include 
necessary non-investment, non-fiduciary ``back-office'' or ``middle-
office'' administrative functions such as human resources, information 
technology, finance, accounting, legal, compliance, treasury, and tax 
services.

[[Page 33972]]

Currently, certain CS asset managers that do not manage ERISA money use 
CSAG for these types of services.
    33. The Applicant requests that Section I(d) of this proposed 
exemption contain an exception which permits CSAG to provide the 
services described above to CS Affiliated QPAMs.
    Department's Response to Request that CSAG Be Permitted to Provide 
Support Services to CS Affiliated QPAMs.
    34. Section I(d) of this proposed exemption contains an exception 
that permits CSAG to provide only necessary, non-investment-related and 
non-fiduciary administrative services to CS Affiliated QPAMs, solely at 
the QPAM's own expense. Given its misconduct, the Department is not 
proposing that CSAG be allowed to provide services to investment funds 
managed by CSAG. The auditor must make express findings regarding the 
Applicant's compliance with this condition, and these findings must be 
set forth in the written report.
    Request 3. The Exemption Should Permit CS Employees To Be Seconded 
to CS Affiliated QPAMs.
    35. The Applicant states that, from time to time, employees from 
other affiliates are ``seconded'' to a CS-affiliated asset manager. 
Although these employees are paid by their home location, they are 
fully subject to the authority, control, and supervision of the QPAM, 
and to all of its rules, regulations, and restrictions. The Applicant 
requests that, consistent with recent QPAM Section I(g) exemptive 
relief for other convicted entities, the Department clarify that 
Section I(d) of the proposed exemption will not be violated if 
employees from other affiliates are ``seconded'' to a CS Affiliated 
QPAM.
    Department's Response to Request that the Exemption Permit CS 
Employees To Be Seconded to CS Affiliated QPAMs.
    36. Section I(d) of this proposed exemption contains an exception 
allowing employees from CSAG affiliates to be seconded to a CS-
affiliated asset manager.
    IV. The Audit Requirement.
    37. The Applicant requested that, unlike the Second Final 
Exemption, this proposed exemption not contain an annual audit 
requirement. The Applicant states that the independent auditor found 
the compliance environment of the CS Affiliated QPAMs to be compliant. 
The Applicant states that over the last several audits, the auditor 
made no suggestions for improving the compliance environment. The 
Applicant represents that the audits have been detailed, comprehensive, 
and exacting. For example, the auditor reviewed systems used by the 
QPAMs to effect compliance, met in person and by phone several times 
during each audit with operations personnel and others, reviewed 
floorplans and physical information barriers, and discussed and 
reviewed the CS Affiliated QPAMs' incident reports. In addition, the 
auditor sampled and reviewed accounts and transactions, reviewed the 
ERISA compliance manual, the proxy voting policy, the global error 
handling policy, the performance fee policy, organizational charts, 
information technology protocols to restrict access to electronic 
systems based on user profiles, investment management agreements with 
investment guidelines, various reports, including the training mandated 
by the exemption, and the roster of employees trained. The auditor 
matched guidelines to investment guidelines monitoring exception 
reports, and noted that alerts or warnings were promptly addressed with 
either an explanation or correction. Finally, the auditor reviewed the 
trade blotters and systems to determine whether the transactions 
complied with the prohibited transaction rules.
    38. The Applicant states that over the course of four audits, the 
independent auditor has thoroughly examined the CS Affiliated QPAMs' 
ERISA compliance programs, and has not made any findings of 
noncompliance with the Second Final Exemption (which requires 
compliance with ERISA generally, including its prohibited transaction 
and fiduciary responsibility provisions), PTE 84-14, or their internal 
ERISA policies. To the contrary, the Applicant represents that the 
independent auditor has found that the CS Affiliated QPAMs have: (a) 
Updated and consolidated-their policies and procedures; (b) developed 
and implemented ERISA training; and (c) complied with PTE 84-14, the 
Second Final Exemption, and their internal ERISA policies. Thus, the 
Applicant is of the view that these audits have demonstrated the CS 
Affiliated QPAMs' comprehensive and robust ERISA compliance 
environment.
    39. The Applicant states that these factors demonstrate that the CS 
Affiliated QPAMs had strong controls in place before the Second Final 
Exemption was granted, which have improved since the exemption was 
issued. The Applicant requests that the Department conclude that an 
additional five years of exemptive relief is warranted for the CS 
Affiliated QPAMs, and that the relief not be conditioned on an annual 
audit.
    Department's Response to Request for Removal of Annual Audit 
Requirement.
    40. The Department is not removing the Annual Audit Requirement. 
The Conviction arose from serious, prolonged and widespread misconduct. 
According to the Statement of Facts filed in the criminal case (the 
Statement of Facts), for decades prior to and through approximately 
2009, CSAG operated an illegal cross-border banking business that 
knowingly and willfully aided and assisted thousands of U.S. clients in 
opening and maintaining undeclared accounts \18\ concealing their 
offshore assets and income from the IRS. Private bankers employed by 
CSAG (referred to as ``Relationship Managers'' or ``RMs'') served as 
the primary contact for U.S. clients with undeclared accounts at CSAG. 
CSAG used a variety of means to assist U.S. clients in concealing their 
undeclared accounts, including: (a) Assisting clients in using sham 
entities as nominee beneficial owners of the undeclared accounts; (b) 
soliciting IRS forms that falsely stated under penalty of perjury that 
the sham entities beneficially owned the assets in the accounts; (c) 
failing to maintain in the United States records related to the 
accounts; (d) destroying account records sent to the United States for 
client review; (e) using Credit Suisse managers and employees as 
unregistered investment advisors on undeclared accounts; (f) 
facilitating withdrawals of funds from undeclared accounts by either 
providing hand-delivered cash in the United States or using Credit 
Suisse's correspondent bank accounts in the United States; (g) 
structuring transfers of funds to evade currency transaction reporting 
requirements; and (h) providing offshore credit and debit cards to 
repatriate funds in the undeclared accounts.
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    \18\ An ``undeclared account'' is a financial account owned by 
an individual subject to U.S. tax and maintained in a foreign 
country that has not been reported by the individual account owner 
to the U.S. government on an income tax return and a Report of 
Foreign Bank and Financial Accounts. U.S. citizens, resident aliens, 
and legal permanent residents have an obligation to report all 
income earned from foreign bank accounts on their tax returns and to 
pay the taxes due on that income.
---------------------------------------------------------------------------

    41. Given the above, the four annual audits of the CS Affiliated 
QPAMs do not provide an adequate basis for the Department to determine 
that asset managers controlled by CSAG should be allowed to engage in 
prohibited transactions, unmonitored, over the next five years, using 
an exemption that otherwise relies on an asset manager's integrity. The 
five additional consecutive years of in-depth audits required by this 
proposed exemption are essential to the Department's findings

[[Page 33973]]

that this proposed exemption will be protective of Covered Plans.

This Proposed Exemption's Audit Requirement

    42. Section I(i) of this proposed five-year exemption requires that 
each CS Affiliated QPAM submit to an audit conducted annually by an 
independent auditor, who has been prudently selected and who has 
appropriate technical training and proficiency with ERISA and the Code, 
to evaluate the adequacy of, and the CS Affiliated QPAM's compliance 
with, the Policies and Training described herein. The audit requirement 
must be incorporated in the Policies. Each annual audit must cover a 
consecutive twelve month period starting with the twelve month period 
that begins on the effective date of the proposed five-year exemption, 
and each annual audit must be completed no later than six (6) months 
after the period to which the audit applies.
    43. The audit condition requires that, 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 CS Affiliated 
QPAM and, if applicable, CSAG, 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. This access is limited to 
information that is relevant to the auditor's objectives, as specified 
by the proposed exemption.
    44. The auditor's engagement must specifically require the auditor 
to determine whether each CS Affiliated QPAM has developed, 
implemented, maintained and followed the Policies in accordance with 
the conditions of this proposed five-year exemption, and has developed 
and implemented the training, as required herein, and must further 
require the auditor to test each CS Affiliated QPAM's operational 
compliance with the Policies and Training. In this regard, the auditor 
must test a sample of each CS Affiliated QPAM's transactions involving 
Covered Plans, sufficient in size and nature to afford the auditor a 
reasonable basis to determine the QPAM's operational compliance with 
the Policies and Training.
    45. For each 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 CSAG and the CS Affiliated 
QPAM to which the audit applies that describes the procedures performed 
by the auditor during the course of its examination. The auditor may 
issue one consolidated Audit Report that covers all the CS Affiliated 
QPAMs. The Audit Report must include the auditor's specific 
determinations regarding: (a) The adequacy of the CS Affiliated QPAM's 
Policies and Training; (b) the CS Affiliated QPAM's compliance with the 
Policies and Training; (c) the need, if any, to strengthen such 
Policies and Training; and (d) any instance of the respective CS 
Affiliated QPAM's noncompliance with the written Policies and Training.
    46. The CS Affiliated QPAM must promptly address or prepare a 
written plan of action to address any determination as to 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 CS Affiliated QPAM, and any action taken or the plan of 
action to be taken by the CS Affiliated QPAM must be included in an 
addendum to the Audit Report (the addendum must be completed prior to 
the certification described below). In the event 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.
    47. Any determination by the auditor that the respective CS 
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 the CS Affiliated QPAM has complied with the 
requirements herein must be based on evidence that the particular CS 
Affiliated QPAM has actually implemented, maintained and followed the 
Policies and Training required by this proposed five-year exemption. 
Furthermore, the auditor must not solely rely on the Annual Exemption 
Report as the basis for the auditor's conclusions in lieu of 
independent determinations and testing performed by the auditor. 
Finally, the Audit Report must address the adequacy of the Annual 
Exemption Review required under this proposed exemption.
    48. Further, the auditor must notify the respective CS 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. In addition, this proposed five-year exemption requires that 
certain senior personnel of CSAG review the Audit Report, make certain 
certifications, and take various corrective actions. In this regard, 
the General Counsel, or one of the three most senior executive officers 
of the CS 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 proposed five-year exemption; and 
that to the best of such officer's knowledge at the time the CS 
Affiliated QPAM has: (a) Addressed, corrected, or 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; and (b) determined that the Policies and Training 
in effect at the time of signing are adequate to ensure compliance with 
the conditions of this proposed five-year exemption and with the 
applicable provisions of ERISA and the Code.
    49. The Risk Committee, the Audit Committee, and CSAG's Board of 
Directors are provided a copy of each Audit Report; and a senior 
executive officer of CSAG's Compliance function must review the Audit 
Report for each CS Affiliated QPAM and must certify in writing, under 
penalty of perjury, that the officer has reviewed each Audit Report.
    50. In order to create a more transparent record in the event that 
the proposed relief is granted, each CS Affiliated QPAM must provide 
its certified Audit Report to the Department no later than 30 days 
following its completion. The Audit Report will be part of the public 
record regarding this proposed five-year exemption. Furthermore, each 
CS 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, the assets of 
which are managed by such CS Affiliated QPAM.
    51. Additionally, any engagement agreement entered into pursuant to 
the engagement of the auditor under this proposed five-year exemption 
must be submitted to the Department's Office of Exemption 
Determinations (OED). Finally, if the proposed five-year exemption is 
granted, the auditor must provide the Department, upon request, for 
inspection and review, access to all of the workpapers created and used 
in

[[Page 33974]]

connection with the audit, provided the access and inspection are 
otherwise permitted by law.
    52. In order to enhance oversight of the compliance with the 
proposed exemption, CSG must notify the Department no later than two 
(2) months after the engagement of a substitute or subsequent auditor, 
and CSG must provide an explanation for the substitution or change 
including a description of any material disputes between the terminated 
auditor and CSG.

Statutory Findings

    53. Section 408(a) of ERISA provides, in part, that the Department 
may not grant an exemption unless the Department finds that the 
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. These criteria are 
discussed below.
    a. ``Administratively Feasible.'' The Department has tentatively 
determined that the proposal 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 CS 
Affiliated QPAM's compliance with the proposed exemption, and a 
corresponding written audit report will be provided to the Department 
and available to the public. The independent audit will provide an 
incentive for and measure of compliance, while reducing the immediate 
need for review and oversight by the Department.
    b. ``In the interest of.'' The Department has tentatively 
determined that the proposed exemption is in the interests of the 
participants and beneficiaries of each affected Covered Plan. It is the 
Department's understanding, based on representations from the 
Applicant, that if the requested exemption is denied, the CS Affiliated 
QPAMs may be unable to effectively manage plan assets subject to ERISA 
or the prohibited transaction provisions of the Code. The CS Affiliated 
QPAMs state that this would cause client ERISA-covered plans to 
question the prudence of retaining the CS Affiliated QPAMs as a manager 
of choice, and client ERISA-covered plans could feel compelled to find 
other managers who could manage their assets without having to either 
forego transactions or rely on other more complex prohibited 
transaction exemptions.
    54. The CS Affiliated QPAMs have represented that if client ERISA-
covered plans were to move to new asset managers they could incur 
transition costs including the costs associated with identifying an 
asset manager (such as the costs and management time required in a 
Request for Proposal process, consultant fees and other due diligence 
expenses), brokerage and other transaction costs associated with the 
sale of portfolio investments to accommodate the investment policies 
and strategy of the new asset manager, the opportunity costs of holding 
cash pending investment by the new asset manager, and lost investment 
opportunities in connection with a change of asset managers. The CS 
Affiliated QPAMs claim that losing the ability to use PTE 84-14 would 
make it difficult, costly, and impracticable to enter into many 
transactions that are in the best interests of client ERISA-covered 
plans, reducing plan choices, especially among large institutional 
financial banks.
    55. The CS Affiliated QPAMs represent further that if the requested 
exemption is not granted, client ERISA-covered plans may be effectively 
prohibited from entering into certain transactions, either because no 
other exemption is available or the counterparty is not willing to 
enter into the transaction without the protections provided by PTE 84-
14. The CS Affiliated QPAMS state that these transactions would include 
those not covered by other exemptions such as a purchase or sale from a 
party in interest of a security without a readily ascertainable fair 
market value. The CS Affiliated QPAMs claim that the loss of the 
ability to utilize PTE 84-14 could significantly delay or even make 
impossible transactions that would be beneficial for the ERISA-covered 
plans because other statutory and class prohibited transaction 
exemptions are not broad enough to cover such routine transactions 
entered at the direction of the CS Affiliated QPAMs. The CS Affiliated 
QPAMs also represent that counterparties could seek to terminate 
contracts for certain outstanding transactions (including swaps) that 
require the CS Affiliated QPAMs to represent that they are QPAMs and/or 
utilize PTE 84-14 and additionally, pursuant to these contracts, swap 
transactions with certain counterparties could automatically and 
immediately be terminated without any notice or action of such 
counterparties, even if other prohibited transaction exemptions are 
available. The CS Affiliated QPAMs further claim that such a 
termination could result in significant losses for the client ERISA-
covered plans that would be avoided if the proposed exemption were 
granted.
    c. ``Protective of.'' The Department has tentatively determined 
that the exemption, as proposed, will be protective of the rights of 
participants and beneficiaries of Covered Plans. As described above, 
the proposed exemption is subject to a suite of conditions, including: 
(a) The creation, maintenance and compliance with policies and 
procedures (the Policies); (b) the implementation of and participation 
in a comprehensive training program (the Training); (c) a robust annual 
audit conducted by an independent auditor evaluating the CS Affiliated 
QPAMs' operational compliance with the Policies and Training, to be 
submitted to the Department and made available as part of the public 
record; (d) the provision of certain agreements and warrants on the 
part of the CS Affiliated QPAMs with respect to any arrangement, 
agreement, or contract between a CS Affiliated QPAM and a Covered Plan 
for which the CS Affiliated QPAM provides asset management or other 
discretionary fiduciary services, including provisions requiring 
compliance with ERISA and the Code, as well as indemnification of such 
Covered Plans for any actual losses resulting directly from certain 
enumerated actions by the CS Affiliated QPAM; (e) specific notice and 
disclosure requirements with respect to the circumstances leading to 
this proposed exemption and compliance with the proposed exemption; and 
(f) the designation of a Compliance Officer responsible for compliance 
with the Policies and Training requirements and the completion by the 
Compliance Officer of an annual Exemption Review and corresponding 
Exemption Report; and (g) the immediate disclosure by CSAG to the 
Department of any Deferred Prosecution Agreement (a DPA) or Non-
Prosecution Agreement (an NPA) that CSAG or an affiliate enters into 
with the U.S Department of Justice, to the extent such DPA or NPA in 
connection with the conduct described in Section I(g) of PTE 84-14 or 
section 411 of ERISA, and any additional information requested by the 
Department in connection therewith.

Summary

    56. Given the conditions described above, the Department has 
tentatively determined that the five-year relief sought by the 
Applicant satisfies the statutory requirements for an exemption under 
section 408(a) of ERISA and section 4975(c)(2) of the Code.

Notice to Interested Persons

    Notice of the proposed exemption will be provided to all interested

[[Page 33975]]

persons within fifteen (15) days of the publication of the notice of 
proposed five-year exemption in the Federal Register. The notice will 
be provided to all interested persons in the manner described in 
Section I(k) of this proposed five-year exemption and will contain the 
documents described therein and a supplemental statement, as required 
pursuant to 29 CFR 2570.43(a)(2). The supplemental statement will 
inform interested persons of their right to comment on and to request a 
hearing with respect to the pending exemption. All written comments 
and/or requests for a hearing must be received by the Department within 
forty five (45) days of the date of publication of this proposed five-
year 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 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 Five-Year Exemption

    The Department is considering granting a five-year exemption under 
the authority of section 408(a) of the Employee Retirement Income 
Security Act of 1974, as amended (ERISA), and section 4975(c)(2) of the 
Internal Revenue Code of 1986, as amended (the Code), and in accordance 
with the procedures set forth in 29 CFR part 2570, subpart B (76 FR 
66637, 66644, October 27, 2011).\19\
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    \19\ For purposes of this proposed five-year exemption, 
references to section 406 of Title I of ERISA, unless otherwise 
specified, should be read to refer as well to the corresponding 
provisions of section 4975 of the Code.
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Section I. Covered Transactions

    If the proposed five-year exemption is granted, the CS Affiliated 
QPAMs, as further defined in Section II(d), will not be precluded from 
relying on the exemptive relief provided by Prohibited Transaction 
Exemption 84-14 (PTE 84-14),\20\ notwithstanding the ``Conviction'' 
against CSAG (as further defined in Section II(a)),\21\ during the 
Exemption Period, provided that the following conditions are satisfied:
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    \20\ 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).
    \21\ 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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    (a) The CS Affiliated QPAMs and the CS Related QPAMs (including 
their officers, directors, agents other than CSAG, employees of such 
QPAMs, and CSAG employees described in subparagraph (d) below) did not 
know of, have reason to know of, or participate in the criminal conduct 
of CSAG that is the subject of the Conviction. For purposes of this 
exemption, including paragraph (c) below, ``participate in'' refers not 
only to active participation in the criminal conduct of CSAG that is 
the subject of the Conviction, but also to knowing approval of the 
criminal conduct, or knowledge of such conduct without taking active 
steps to prohibit such conduct, including reporting the conduct to such 
individual's supervisors, and to the Board of Directors. In this 
regard, unless the individual reasonably believed that his or her 
initial report was given an appropriate response within a reasonable 
time, the individual must further report the criminal conduct to the 
person or persons the individual reasonably expected would carry out 
the appropriate response.
    (b) The CS Affiliated QPAMs and the CS Related QPAMs (including 
their officers, directors, agents other than CSAG, employees of such 
QPAMs, and CSAG employees described in subparagraph (d) below) did not 
receive direct compensation, or knowingly receive indirect 
compensation, in connection with the criminal conduct of CSAG that is 
the subject of the Conviction;
    (c) The CS Affiliated QPAMs will not employ or knowingly engage any 
of the individuals that ``participated in'' the criminal conduct of 
CSAG that is the subject of the Conviction;
    (d) At all times during the Exemption Period, a CS Affiliated QPAM 
will not use its authority or influence to direct an ``investment 
fund'' (as defined in Section VI(b) of PTE 84-14) that is subject to 
ERISA or the Code and managed by such CS Affiliated QPAM with respect 
to one or more Covered Plans, to enter into any transaction with CSAG 
or to engage CSAG 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. A CS 
Affiliated QPAM will not fail this condition solely because:
    (1) A CSAG affiliate serves as a local sub-custodian that is 
selected by an unaffiliated global custodian that, in turn, is selected 
by someone other than a CS Affiliated QPAM or CS Related QPAM;
    (2) CSAG provides only necessary, non-investment, non-fiduciary 
services that support the operations of CS Affiliated QPAMs, at the CS 
Affiliated QPAM's own expense, and the Covered Plan is not required to 
pay any

[[Page 33976]]

additional fee beyond its agreed-to asset management fee. This 
exception does not permit CSAG or its branches to provide any service 
to an investment fund managed by a CS Affiliated QPAM or CS Related 
QPAM; or
    (3) CSAG employees are double-hatted, seconded, supervised, or 
subject to the control of a CS Affiliated QPAM;
    (e) Any failure of a CS Affiliated QPAM to satisfy Section I(g) of 
PTE 84-14 arose solely from the Conviction;
    (f) A CS Affiliated QPAM or a CS 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 criminal 
conduct that is the subject of the Conviction; or cause the CS 
Affiliated QPAM or CS Related QPAM, its affiliates, or related parties 
to directly or indirectly profit from the criminal conduct that is the 
subject of the Conviction;
    (g) CSAG will 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, except it may 
act as such a fiduciary (1) with respect to employee benefit plans 
sponsored for its own employees or employees of an affiliate; or (2) in 
connection with securities lending services of the New York Branch of 
CSAG. CSAG will not be treated as violating the conditions of the 
exemption solely because it acted as an investment advice fiduciary 
within the meaning of section 3(21)(A)(ii) or section 4975(e)(3)(B) of 
the Code;
    (h)(1) Each CS Affiliated QPAM must continue to maintain, adjust 
(to the extent necessary) or immediately implement and follow written 
policies and procedures (the Policies). The Policies must require and 
be reasonably designed to ensure that:
    (i) The asset management decisions of the CS Affiliated QPAMs are 
conducted independently of CSAG's corporate management and business 
activities, and without considering any fee a CS-related local sub-
custodian may receive from those decisions. This condition does not 
preclude a CS Affiliated QPAM from receiving publicly available 
research and other widely available information from a CSAG affiliate;
    (ii) The CS 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 CS 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 CS Affiliated QPAM to 
regulators, including but not limited to, the Department of Labor, the 
Department of the Treasury, the Department of Justice, and the Pension 
Benefit Guaranty Corporation, on behalf of, 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 its knowledge at the time, the CS 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; and
    (vi) The CS Affiliated QPAM complies with the terms of this five-
year exemption, and CSAG complies with the terms of Section I(d)(2);
    (2) Any violation of, or failure to comply with, an item in 
subparagraphs (h)(1)(ii) through (vi) of this section, 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 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) of the relevant CS 
Affiliated QPAM, and the independent auditor responsible for reviewing 
compliance with the Policies. A CS 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 paragraph (2);
    (3) Each CS Affiliated QPAM must maintain, adjust (to the extent 
necessary), and implement a program of training (the Training), 
conducted at least annually, for all relevant CS 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 five-year 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 CS Affiliated QPAM submits to three audits, 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 CS Affiliated QPAM's compliance 
with, the Policies and Training described herein. The audit requirement 
must be incorporated in the Policies. The first audit must cover the 24 
month period that begins on November 21, 2019. The second audit must 
cover the 24 month period that begins on November 21, 2021, and the 
third audit must cover the 12 month period that begins on November 21, 
2023. Each audit must be completed no later than six (6) months after 
the period to which the audit applies; \22\
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    \22\ Periods prior to November 21, 2019 must be audited 
consistent with PTE 2015-14.
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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 CS Affiliated 
QPAM and, if applicable, CSAG, 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 CS Affiliated QPAM has developed, 
implemented, maintained, and followed the Policies in accordance with 
the conditions of this five-year exemption, and has developed and 
implemented the Training, as required herein;
    (4) The auditor's engagement must specifically require the auditor 
to test

[[Page 33977]]

each CS Affiliated QPAM's operational compliance with the Policies and 
Training. In this regard, the auditor must test a sample of: (1) Each 
CS Affiliated QPAM's transactions involving Covered Plans; (2) each CS 
Affiliated QPAM's transactions involving CSAG affiliates that serve as 
a local sub-custodian. The samples must be sufficient in size and 
nature to afford the auditor a reasonable basis to determine the QPAM's 
operational compliance with the Policies and Training;
    (5) For each 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 CSAG and the CS Affiliated 
QPAMs to which the audit applies that describes the procedures 
performed by the auditor during the course of its examination. The 
auditor, at its discretion, may issue a single consolidated Audit 
Report that covers all the CS Affiliated QPAMs. The Audit Report must 
include the auditor's specific determinations regarding:
    (i) The adequacy of the CS Affiliated QPAM's Policies and Training; 
the CS 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 CS Affiliated QPAM's noncompliance with the 
written Policies and Training described in Section I(h) above. The CS 
Affiliated QPAMs must promptly address any noncompliance. The CS 
Affiliated QPAM must promptly address or prepare a written plan of 
action to address any determination as to 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 CS Affiliated 
QPAM. Any action taken or the plan of action to be taken by the 
respective CS 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 the respective CS 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 CS Affiliated QPAM has complied with the requirements under this 
subparagraph must be based on evidence that the particular CS 
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 respective CS Affiliated QPAMs 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 each Audit Report, the General Counsel, or one 
of the three most senior executive officers of the CS Affiliated QPAMs 
to which the Audit Report applies, must certify in writing, under 
penalty of perjury, that the officer has reviewed the Audit Report and 
this five-year exemption; that to the best of such officer's knowledge 
at the time the CS Affiliated QPAM addressed, corrected, or 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, to the best of the officer's knowledge 
at the time, the Policies and Training in effect at the time of signing 
are adequate to ensure compliance with the conditions of this exemption 
and the applicable provisions of ERISA and the Code;
    (8) The Risk Committee, the Audit Committee, and CSAG's Board of 
Directors are provided a copy of each Audit Report; and the head of 
Compliance and the General Counsel must review the Audit Report for 
each CS Affiliated QPAM and must certify in writing, under penalty of 
perjury, that such officer has reviewed each Audit Report;
    (9) Each CS Affiliated QPAM must provide its certified Audit 
Report, by regular mail to: The Department's 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. The delivery must take place no more than 30 
days following the completion of the Audit Report. The Audit Report 
will be part of the public record regarding this five-year exemption. 
Furthermore, each CS 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 by this exemption must be submitted to OED no later than two 
(2) months after the execution of the engagement agreement;
    (11) The auditor must provide the Department, upon request, for 
inspection and review, access to all of the workpapers created and used 
in connection with the audit, provided the access and inspection are 
otherwise permitted by law; and
    (12) CSG 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 CSAG;
    (j) As of the effective date of this five-year exemption, with 
respect to any arrangement, agreement, or contract between a CS 
Affiliated QPAM and a Covered Plan, each CS Affiliated QPAM agrees and 
warrants to Covered Plans:
    (1) To comply with ERISA and the Code, as applicable with respect 
to the 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 and IRA to the extent that section 404 
is applicable;
    (2) To indemnify and hold harmless the Covered Plan for any actual 
losses resulting directly from a CS 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 a CS Affiliated QPAM or any claim arising out of the 
failure of such CS Affiliated QPAMs 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 only applies to actual 
losses caused by the CS Affiliated QPAM's violations;

[[Page 33978]]

    (3) Not to require (or otherwise cause) the Covered Plan to waive, 
limit, or qualify the liability of the CS Affiliated QPAM for violating 
ERISA or the Code or engaging in prohibited transactions;
    (4) Not to restrict the ability of the Covered Plan to terminate or 
withdraw from its arrangement with the CS Affiliated QPAM, with respect 
to 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. In connection with any 
such arrangement 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 
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;
    (6) Not to include exculpatory provisions disclaiming or otherwise 
limiting liability of the CS Affiliated QPAMs for a violation of the 
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 CSAG and its affiliates, or damages arising outside the control of 
the CS Affiliated QPAM; and
    (7) Within four (4) months of the effective date of this five-year 
exemption, each CS Affiliated QPAM must provide a notice of its 
obligations under this Section I(j) to each Covered Plan. For Covered 
Plans that enter into a written asset or investment management 
agreement with a CS Affiliated QPAM on or after November 21, 2019, the 
CS Affiliated QPAM must agree to its obligations under this Section 
I(j) in an updated investment management agreement between the CS 
Affiliated QPAM and such clients or other written contractual 
agreement. Notwithstanding the above, a CS Affiliated QPAM will not 
violate the condition solely because a Covered Plan refuses to sign an 
updated investment management agreement. This condition will be deemed 
met for each Covered Plan that received a notice pursuant to PTE 2015-
14 that meets the terms of this condition.
    (k) Notice to Covered Plan Clients. Each CS Affiliated QPAM 
provides a notice of the five-year 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) 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 that entered into a written asset or 
investment management agreement with a CS Affiliated QPAM, or the 
sponsor of an investment fund in any case where a CS Affiliated QPAM 
acts as a sub-adviser to the investment fund in which such ERISA-
covered plan and IRA invests. The notice, Summary and Statement must be 
provided prior to, or contemporaneously with, the client's receipt of a 
written asset management agreement from the CS Affiliated QPAM. If this 
five-year exemption is granted, the clients must receive a Federal 
Register copy of the notice of final five-year exemption within sixty 
(60) days of its publication in the Federal Register. The notice may be 
delivered electronically (including by an email that has a link to the 
five-year exemption).
    (l) The CS Affiliated QPAM must comply with each condition of PTE 
84-14, as amended, with the sole exception of the violation of Section 
I(g) of PTE 84-14 that is attributable to the Conviction. If, during 
the Exemption Period, an entity within the Credit Suisse corporate 
structure is convicted of a crime described in Section I(g) of PTE 84-
14, (other than the Conviction), including a conviction in a foreign 
jurisdiction for a crime described in Section I(g) of PTE 84-14, relief 
in this exemption would terminate immediately;
    (m)(1) By May 20, 2020, CSAG 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 an annual review for each twelve month period, 
beginning on November 21, 2019, (the Annual 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 compliance for asset 
management;
    (2) With respect to each Annual Exemption Review, the following 
conditions must be met:
    (i) The Annual Exemption Review includes a review of the CS 
Affiliated 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 2015-14; any 
material change in the relevant business activities of the CS 
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 CS Affiliated QPAMs;
    (ii) The Compliance Officer prepares a written report for each 
Annual Exemption Review (each, an Annual Exemption Report) that (A) 
summarizes his or her material activities during the preceding year; 
(B) sets forth any instance of noncompliance discovered during the 
preceding year, 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 each Annual Exemption Report, the Compliance Officer must 
certify in writing that to the best of his or her knowledge at the 
time: (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

[[Page 33979]]

described herein are met; (C) any known instance of noncompliance 
during the preceding year and any related correction taken to date have 
been identified in the Annual Exemption Report; and (D) the CS 
Affiliated QPAMs have complied with the Policies and Training, and/or 
corrected (or are correcting) any known instances of noncompliance in 
accordance with Section I(h) above;
    (iv) Each Annual Exemption Report must be provided to appropriate 
corporate officers of CSAG and each CS Affiliated QPAM to which such 
report relates; the head of Compliance and the General Counsel (or 
their functional equivalent) of the relevant CS Affiliated QPAM; and 
must be made unconditionally available to the independent auditor 
described in Section I(i) above;
    (v) Each Annual Exemption Review, including the Compliance 
Officer's written Annual Report, must be completed within three (3) 
months following the end of the period to which it relates;
    (n) Each CS Affiliated QPAM will maintain records necessary to 
demonstrate that the conditions of this five-year exemption have been 
met, for six (6) years following the date of any transaction for which 
the CS Affiliated QPAM relies upon the relief in the five-year 
exemption;
    (o) During the Exemption Period, CSAG: (1) Immediately discloses to 
the Department any Deferred Prosecution Agreement (a DPA) or Non-
Prosecution Agreement (an NPA) that Credit Suisse Group AG or CSAG or 
any affiliate (as defined in Section VI(d) of PTE 84-14) enters into 
with the U.S Department of Justice, to the extent such DPA or NPA 
relates to the 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 the conduct and allegations that led to the 
agreement;
    (p) Within 60 days of the effective date of the five-year 
exemption, each CS 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 CS 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.\23\ 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
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    \23\ In the event the Applicant meets this disclosure 
requirement through Summary Policies, changes to the Policies shall 
not result in the requirement for a new disclosure unless, as a 
result of changes to the Policies, the Summary Policies are no 
longer accurate.
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    (q) A CS Affiliated QPAM will not fail to meet the terms of this 
five-year exemption, solely because a different CS Affiliated QPAM 
fails to satisfy a condition for relief under this five-year exemption 
described in Sections I(c), (d), (h), (i), (j), (k), (l), (n), and (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 CSAG or its affiliates.

Section II. Definitions

    (a) The term ``Conviction'' means the judgment of conviction 
against CSAG for one count of conspiracy to violate section 7206(2) of 
the Internal Revenue Code in violation of Title 18, United States Code, 
Section 371, that was entered in the District Court for the Eastern 
District of Virginia in Case Number 1:14-cr-188-RBS, on November 21, 
2014.
    (b) The term ``Covered Plan'' means a plan subject to Part 4 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 CS Affiliated QPAM relies on PTE 84-14, or with respect to 
which a CS Affiliated QPAM (or any CSAG 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 CS 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.
    (c) The term ``CSAG'' means Credit Suisse AG.
    (d) The term ``CS Affiliated QPAM'' means a ``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 CSAG is a current or future ``affiliate'' (as defined in Section 
VI(d) of PTE 84-14), but is not a CS Related QPAM. The term ``CS 
Affiliated QPAM'' excludes the parent entity, CSAG.
    (e) The term ``CS Related QPAM'' means any current or future 
``qualified professional asset manager'' (as defined in Section VI(a) 
of PTE 84-14) that relies on the relief provided by PTE 84-14, and with 
respect to which CSAG owns a direct or indirect five (5) percent or 
more interest, but with respect to which CSAG is not an ``affiliate'' 
(as defined in section VI(d)(1) of PTE 84-14).
    (f) The term ``Exemption Period'' means the period from November 
21, 2019 through November 20, 2024.
    Effective Date: If granted, this proposed five-year exemption will 
be in effect for five years beginning on the expiration of PTE 2015-14.

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

    Signed at Washington, DC, this 10th day of July, 2019.
Lyssa E. Hall,
Director, Office of Exemption Determinations, Employee Benefits 
Security Administration, U.S. Department of Labor.
[FR Doc. 2019-15069 Filed 7-15-19; 8:45 am]
 BILLING CODE 4510-29-P