Notice2022-00170
Proposed Exemption for Certain Prohibited Transaction Restrictions Involving Credit Suisse Group AG (CSG or the Applicant), Zurich, Switzerland
Primary source
Metadata and text below are from the Federal Register, a public-domain U.S. government work. Always verify the official published version before relying on it for any legal matter.
Published
January 10, 2022
Issuing agencies
Labor DepartmentEmployee Benefits Security Administration
Abstract
This document provides notice of the pendency before the Department of Labor (the Department) of a proposed individual exemption from certain of the prohibited transaction restrictions of the Employee Retirement Income Security Act of 1974 (ERISA) and/or the Internal Revenue Code of 1986 (the Code). If this proposed exemption is granted, certain entities with specified relationships to Credit Suisse AG (CSAG) and Credit Suisse Securities (Europe) Limited (CSSEL) will not be precluded from relying on the exemptive relief provided by Prohibited Transaction Class Exemption 84-14, notwithstanding the judgments of conviction against CSAG and CSSEL, described below.
Full Text
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<title>Federal Register, Volume 87 Issue 6 (Monday, January 10, 2022)</title>
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[Federal Register Volume 87, Number 6 (Monday, January 10, 2022)]
[Notices]
[Pages 1186-1200]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2022-00170]
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DEPARTMENT OF LABOR
Employee Benefits Security Administration
[Exemption Application No. D-12065]
Proposed Exemption for Certain Prohibited Transaction
Restrictions Involving Credit Suisse Group AG (CSG or the Applicant),
Zurich, Switzerland
AGENCY: Employee Benefits Security Administration, Labor.
ACTION: Notice of proposed exemption.
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SUMMARY: This document provides notice of the pendency before the
Department of Labor (the Department) of a proposed individual exemption
from certain of the prohibited transaction restrictions of the Employee
Retirement Income Security Act of 1974 (ERISA) and/or the Internal
Revenue Code of
[[Page 1187]]
1986 (the Code). If this proposed exemption is granted, certain
entities with specified relationships to Credit Suisse AG (CSAG) and
Credit Suisse Securities (Europe) Limited (CSSEL) will not be precluded
from relying on the exemptive relief provided by Prohibited Transaction
Class Exemption 84-14, notwithstanding the judgments of conviction
against CSAG and CSSEL, described below.
DATES: If granted, this proposed exemption will be in effect for one
year beginning on the date of conviction of Credit Suisse Securities
(Europe) Limited in Case Number 1:21-cr-00520-WFK.
Written comments and requests for a public hearing on the proposed
exemption should be submitted to the Department by February 22, 2022.
ADDRESSES: All written comments and requests for a hearing should be
sent to the Employee Benefits Security Administration (EBSA), Office of
Exemption Determinations, Attention: Application No. D-12065 via email
to <a href="/cdn-cgi/l/email-protection#02672f4d474642666d6e2c656d74"><span class="__cf_email__" data-cfemail="c5a0e88a808185a1aaa9eba2aab3">[email protected]</span></a> or online through <a href="https://www.regulations.gov">https://www.regulations.gov</a>. 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: Erin Scott Hesse of the Department at
(202) 693-8546. (This is not a toll-free number.)
SUPPLEMENTARY INFORMATION:
Comments
In light of the current circumstances surrounding the COVID-19
pandemic caused by the novel coronavirus which may result in disruption
to the receipt of comments by U.S. Mail or hand delivery/courier,
persons are encouraged to submit all comments electronically and not to
follow with paper copies. 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. Any
person who may be adversely affected by an exemption can request a
hearing on the 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
if: (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 <a href="https://www.regulations.gov">https://www.regulations.gov</a>, including any personal information provided,
unless the comment includes information claimed to be confidential or
other information whose disclosure is restricted by statute. If you
submit a comment, EBSA recommends that you include your name and other
contact information in the body of your comment, but DO NOT submit
information that you consider to be confidential, or otherwise
protected (such as Social Security number or an unlisted phone number)
or confidential business information that you do not want publicly
disclosed. However, if EBSA cannot read your comment due to technical
difficulties and cannot contact you for clarification, EBSA might not
be able to consider your comment. Additionally, the <a href="https://www.regulations.gov">https://www.regulations.gov</a> 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 <a href="https://www.regulations.gov">https://www.regulations.gov</a>,
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.
Proposed Exemption
The Department is considering granting an exemption under the
authority of Section 408(a) of the Employee Retirement Income Security
Act of 1974, as amended (ERISA), 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 46637,
66644, October 27, 2011).\1\ If the proposed exemption is granted, the
Credit Suisse Affiliated QPAMs and the Credit Suisse Related QPAMs, as
defined below, will not be precluded from relying on the exemptive
relief provided by Prohibited Transaction Class Exemption (PTE) 84-14
(PTE 84-14),\2\ notwithstanding the judgment of conviction against
Credit Suisse AG (CSAG) and upcoming judgment of conviction against
Credit Suisse Securities (Europe) Limited (CSSEL), described below.\3\
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\1\ For purposes of this proposed exemption reference to
specific provisions of Title I of the ERISA, unless otherwise
specified, should be read to refer as well to the corresponding
provisions of the Code.
\2\ 49 FR 9494 (March 13, 1984), as corrected at 50 FR 41430
(Oct. 10, 1985), as amended at 70 FR 49305 (Aug. 23, 2005), and as
amended at 75 FR 38837 (July 6, 2010). Section I(g) of PTE 84-14
generally provides that ``[n]either the QPAM nor any affiliate
thereof . . . nor any owner . . . of a 5 percent or more interest in
the QPAM is a person who within the 10 years immediately preceding
the transaction has been either convicted or released from
imprisonment, whichever is later, as a result of'' certain felonies
including a violation of 18 U.S.C. 1349.
\3\ As described in more detail below, to the extent that any
investor believes that it has suffered losses in connection with the
impending CSSEL Conviction, Credit Suisse's resolutions with the
U.S. Securities and Exchange Commission (SEC) and Department of
Justice (DOJ) provide those potentially damaged investors with two
potential avenues through which to receive compensation, should they
be able to support their claims with sufficient evidence.
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This proposed exemption will be effective for a one-year period
beginning on the date a judgment of conviction against CSSEL (the CSSEL
Conviction) is entered in the United States District Court for the
Eastern District of New York in case number 1:21-cr-00520-WFK, provided
that the conditions set out in Section III of the Proposed Exemption
are satisfied.
Summary of Facts and Representations <SUP>\4\</SUP>
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\4\ The Department notes that availability of this exemption, if
granted, is subject to the express condition that the material facts
and representations contained in application D-12065 are true and
complete, and accurately describe all material terms of the
transaction(s) covered by the exemption. If there is any material
change in a transaction covered by the exemption, or in a material
fact or representation described in the application, the exemption
will cease to apply as of the date of the change.
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Credit Suisse Group AG
1. CSG is a publicly-traded corporation headquartered in Zurich,
Switzerland. CSG and its affiliates operate in about 50 countries and
[[Page 1188]]
currently have approximately 48,770 employees, providing services
including private banking, investment banking, and asset management. As
of December 31, 2020, CSG and its consolidated subsidiaries had total
balance sheet assets of approximately $890 billion and $47 billion,
respectively.
2. CSG owns a 100% interest in Credit Suisse AG (CSAG). CSAG
operates as a bank, in Switzerland and abroad. Currently, two Credit
Suisse asset management affiliates, Credit Suisse Asset Management, LLC
(CSAM LLC) and Credit Suisse Asset Management Limited (CSAM Ltd.)
(together, the CS Affiliated QPAMs), manage the assets of ERISA-covered
plans and IRAs (together, Covered Plans) on a discretionary basis. The
CS Affiliated QPAMs also advise or sub-advise pooled funds. These
affiliates routinely rely upon PTE 84-14 to provide relief for party in
interest investment transactions.
3. CSSEL is headquartered in London, United Kingdom and is
indirectly a wholly-owned subsidiary of CSG. CSSEL provides a broad
range of financial products and services including global securities
sales, trading and execution, prime brokerage and capital markets, with
an active securities branch in Korea.
4. The Applicant represents that the investment management
businesses that operate out of the CS Affiliated QPAMs are separate
businesses from CSAG and CSSEL. The CS Affiliated QPAMs have dedicated
systems, management, risk and compliance officers and/or legal
coverage. The management of plan assets is conducted separately from:
(a) The non-investment management business activities of the Applicant,
including the investment banking businesses; and (b) the conduct that
is the subject of the CSSEL Plea Agreement (described below). The
policies and procedures create information barriers designed to prevent
employees of the CS Affiliated QPAMs from gaining access to inside
information that an affiliate may have acquired or developed in
connection with the investment banking, treasury services or other
investor services business activities. These policies and procedures
apply to employees, officers, and directors of the CS Affiliated QPAMs.
The Applicant maintains an employee hotline for employees to express
any concerns of wrongdoing anonymously.
5. CSAG also owns a five percent or more interest in certain other
entities that may provide investment management services to plans but
that are not affiliates of CSAG (the CS Related QPAMs). CSSEL, however,
currently has no subsidiaries in which it has a five percent or more
interest but which are not commonly controlled with CSAG and that are
QPAMs within the meaning of PTE 2019-07.\5\
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\5\ See the heading below regarding ``Related Individual
Exemptions'' for a description of PTE 2019-07.
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6. The CS Affiliated QPAMs' clients include plans subject to Part
IV of Title I of ERISA and plans subject to Code section 4975, with
respect to which the CS Affiliated QPAMs rely on PTE 84-14, or with
respect to which the CS Affiliated QPAMs (or a CSG affiliate) have
expressly represented that the managers qualify as a QPAM or rely on
PTE 84-14.\6\ These plans are referred to collectively as Covered Plans
throughout this Notice.
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\6\ 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.
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Relevant ERISA Provisions and PTE 84-14
7. The rules set forth in ERISA section 406 and Code section
4975(c)(1) proscribe certain ``prohibited transactions'' between plans
and related parties with respect to those plans. Under ERISA, such
parties are known as ``parties in interest.'' ERISA section 3(14)
defines parties in interest with respect to a plan to 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.\7\
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\7\ Under the Code, such parties, or similar parties, are
referred to as ``disqualified persons.''
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8. The prohibited transaction provisions under ERISA section 406(a)
and Code Section 4975(c)(1) 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.\8\ Under the
authority of ERISA section 408(a) and Code section 4975(c)(2), 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) if the
Departments finds an exemption is (i) administratively feasible, (ii)
in the interests of the plan and of its participants and beneficiaries,
and (iii) protective of the rights of participants and beneficiaries.
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\8\ The prohibited transaction provisions also include certain
fiduciary prohibited transactions under ERISA section 406(b) and
Code section 4975(c)(1)(E) and (F). 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 ERISA section
406(b).
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9. PTE 84-14 reflects the Department's conclusion that it could
provide broad relief from the prohibited transaction provisions of
ERISA section 406(a) and Code section 4975(c)(1), in the circumstances
set forth in that exemption, only if the commitments and the
investments of plan assets, and the negotiations leading thereto, are
the sole responsibility of an independent discretionary manager.
10. Section I(g) of PTE 84-14 prevents an entity that may otherwise
meet the definition of a QPAM from utilizing the exemptive relief
provided by PTE 84-14, for itself and its client plans, if that entity
or an ``affiliate'' \9\ 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.
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\9\ 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.''
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11. The inclusion of Section I(g) in PTE 84-14 is, in part, based
on an expectation that QPAMs will maintain a high standard of
integrity. This expectation extends not only to the QPAM itself but
also to those who may be in a position to influence the policies of the
QPAM.
Prior 2014 Conviction of CSAG (the CSAG Conviction) and Related
Exemptions
The CSAG Conviction
12. On May 19, 2014, the Tax Division of the United States
Department of Justice (DOJ) and the U.S. Attorney's Office for the
Eastern District of Virginia filed a one-count criminal information
(the CSAG Information) in the District Court for the Eastern District
of Virginia (the Virginia District Court) charging CSAG with a
conspiracy to violate Code section 7206(2) in violation of Title 18,
[[Page 1189]]
United States Code, Section 371. The CSAG Information identified the
Applicant and its subsidiaries, Credit Suisse Fides and Clariden Leu
Ltd., of 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.
13. According to the Statement of Facts filed in the criminal case
(the CSAG 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 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 by: Assisting clients in using sham
entities as nominee beneficial owners of the undeclared accounts;
soliciting IRS forms that falsely stated under penalty of perjury that
the sham entities beneficially owned the assets in the accounts;
failing to maintain records in the United States related to the
accounts; destroying account records sent to the United States for
client review; using Credit Suisse \10\ managers and employees as
unregistered investment advisors on undeclared accounts; 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; structuring transfers
of funds to evade currency transaction reporting requirements; and
providing offshore credit and debit cards to repatriate funds in the
undeclared accounts.
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\10\ The CSAG Statement of Facts defined ``Credit Suisse'' to
mean CSAG, its parent, and Switzerland-based subsidiaries and
affiliates, including Clariden Leu.
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14. CSAG made a number of ineffectual attempts to consolidate these
U.S. clients' accounts in CSAG business entities that complied with
U.S. law. For instance, starting in or about 2009, CSAG engaged in a
flawed process of verifying tax compliance of U.S. accounts in order to
allow these accounts to remain at CSAG. In December 2010, the Tax
Division of the U.S. Department of Justice (DOJ) informed Credit Suisse
AG that it had begun a criminal investigation of CSAG that had
uncovered evidence of tax law violations. Although CSAG had either
transferred or terminated the majority of its relationships with these
U.S. clients by approximately 2010, CSAG continued to identify U.S.
customer accounts for closure until on or about 2013.
15. On May 19, 2014, pursuant to a plea agreement (the CSAG Plea
Agreement), CSAG entered a plea of guilty for assisting U.S. citizens
in federal income tax evasion. The conviction (the CSAG Conviction)
occurred on November 21, 2014.
Related Individual Exemptions
16. In connection with the CSAG Conviction, the Department first
granted PTE 2014-11,\11\ a one-year exemption, which allowed CS
Affiliated and Related QPAMs to continue to rely on PTE 84-14,
notwithstanding the CSAG Conviction, as long as a number of conditions
were met. Subsequent to granting PTE 2014-11, the Department granted
PTE 2015-14, an additional four-year exemption that continued to
provide extended relief for CS Affiliated and Related QPAMs.\12\ Before
the expiration of PTE 2015-14, the Department granted PTE 2019-07,
which would have provided the final five-years of relief needed in
connection with the CSAG Conviction.\13\
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\11\ 79 FR 68716 (Nov. 18, 2014).
\12\ 80 FR 59817 (Oct. 2, 2015).
\13\ See 84 FR 61928 (Nov. 14, 2019).
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Impending Conviction of CSSEL (the CSSEL Conviction) and CSG Deferred
Prosecution Agreement (DPA)
The CSSEL Conviction
17. On October 19, 2021, the DOJ, Criminal Division, Money
Laundering and Asset Recovery Section and Fraud Section, and the United
States Attorney's Office for the Eastern District of New York
(collectively, the Offices), filed a criminal information (the CSSEL
Information) in the District Court for the Eastern District of New York
(the New York District Court) charging CSSEL with one count of
conspiracy to commit wire fraud in violation of 18 U.S.C. 1349.
18. CSSEL agreed to resolve the action through a plea agreement
presented to the New York District Court on October 19, 2021 (the CSSEL
Plea Agreement). Under the CSSEL Plea Agreement, CSSEL agreed to enter
a plea of guilty to the charge set out in the CSSEL Information (the
CSSEL Plea). In addition, CSSEL will make an admission of guilt to the
District Court. The Applicant expects that the District Court will
enter a judgment against CSSEL that will require remedies that are
materially the same as those set forth in the CSSEL Plea Agreement. On
October 19, 2021, in connection with the CSSEL Plea, the ultimate
parent of CSSEL, CSG, entered into a Deferred Prosecution Agreement
(the DPA) with the Criminal Division, Money Laundering and Asset
Recovery Section and Fraud Section of the DOJ and the United States
Attorney's Office for the Eastern District of New York.
19. For purposes of Section I(g) of PTE 84-14, the date CSSEL is
sentenced will be the conviction date (the CSSEL Conviction Date). As
of that date, absent this exemption, the CS Affiliated and Related
QPAMs will no longer be able to rely on the relief provided by PTE 84-
14 as of the CSSEL Conviction Date. The CSSEL Conviction will also
violate PTE 2019-07 and therefore, absent this exemption, the CS
Affiliated and Related QPAMs will no longer be able to rely on the
relief provided by either PTE 84-14 or PTE 2019-07 as of the CSSEL
Conviction Date.
20. According to the Statement of Facts (the CSSEL Statement of
Facts) \14\ that accompanied the CSSEL Plea Agreement,\15\ CSSEL acted
as a Joint Lead Manager underwriting the issuance of $500 million in
loan participation notes (LPNs) to partially finance an $850 million
loan for a tuna fishing project in Mozambique in 2013, and acted as
Joint Dealer Manager in the exchange of those LPNs for a sovereign
[[Page 1190]]
bond (EMATUM \16\ Exchange) (collectively, the EMATUM Securities) in
2016.
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\14\ Unless otherwise specified, all information in this section
is taken from the Applicant's exemption application and supporting
documents, the CSSEL Plea Agreement, and the CSSEL Statement of
Facts. According to the CSSEL Plea Agreement ``[t]he Defendant is
pleading guilty because it is guilty of the charge contained in the
Information. The Defendant admits, agrees, and stipulates that the
factual allegations set forth in the Information and the Statement
of Facts are true and correct, that it is responsible for the acts
of its officers, directors, employees, and agents described in the
Information and the Statement of Facts, and that the Information and
the Statement of Facts accurately reflect the Defendant's criminal
conduct.'' P. 11. Additionally, as part of the CSSEL Plea Agreement,
the Defendant ``expressly agrees that it shall not, through present
or future attorneys, officers, directors, employees, agents or any
other person authorized to speak for the Defendant make any public
statement, in litigation or otherwise, contradicting the acceptance
of responsibility by the Defendant set forth above or the facts
described in the Information and the Statement of Facts.'' P. 23.
\15\ Plea Agreement entered into between the United States of
America, by and through the United States Department of Justice,
Criminal Division, Money Laundering and Asset Recovery Section and
Fraud Section, and the United States Attorney's Office for the
Eastern District of New York and Credit Suisse Securities (Europe)
Limited, Cr. No. 21-520 (MKB), filed Oct. 19, 2021.
\16\ EMATUM was a company owned, controlled, and overseen by the
Government of Mozambique. EMATUM was created to undertake a project
to create a state-owned tuna fishing company for Mozambique.
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21. CSSEL, through its employees, conspired to use U.S. wires and
the U.S. financial system to defraud U.S. and international investors.
Credit Suisse \17\ and its co-conspirators conspired to use
international and interstate wires to, from, and through the United
States to transmit false and misleading statements to investors in the
EMATUM Securities, transfer proceeds obtained from those investors
through the fraudulent scheme to the co-conspirators, and pay kickbacks
to three former Credit Suisse bankers.
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\17\ The CSSEL Statement of facts defined ``Credit Suisse'' to
mean CSG together with its wholly-owned subsidiaries and affiliated
entities.
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22. CSSEL, through Surjan Singh (Singh), who left Credit Suisse in
2017, and Andrew Pearse (Pearse) and Detelina Subeva (Subeva), who both
left Credit Suisse in 2013, among other things, conspired to defraud
investors and potential investors in the EMATUM Securities by
concealing and misrepresenting the fact that approximately $50 million
in kickbacks were paid to Pearse, Singh, and Subeva from the loan
proceeds of the EMATUM LPN transaction. Jean Boustani, an agent of
Privinvest,\18\ an entity not affiliated with Credit Suisse, paid
bribes totaling approximately $150 million to various Mozambican
government officials and others, including Manuel Chang, Mozambique's
Minister of Finance, and Antonio do Rosario, an official in
Mozambique's governmental state intelligence and security service,
known as Servico de Informacoes e Seguranca do Estado, which, together
with other Mozambican government agencies, was an owner of ProIndicus
\19\ and EMATUM.
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\18\ Privinvest was a holding company based in Abu Dhabi, United
Arab Emirates. Privinvest was engaged in shipbuilding of various
types of vessels.
\19\ ProIndicus was a company owned, controlled, and overseen by
the Government of Mozambique. ProIndicus was created to undertake a
project to create a state-owned coastal surveillance and protection
plan for Mozambique.
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23. Credit Suisse also arranged the EMATUM Exchange, whereby, in
2015, when EMATUM began encountering problems servicing the EMATUM
loans, Credit Suisse arranged for the LPNs to be exchanged for
Mozambique-issued Eurobonds. According to the Statement of Facts, in
seeking investors' consent to the EMATUM Exchange, CSSEL prepared
documents about the EMATUM Exchange that were sent to investors and
included false and misleading statements regarding the use of proceeds
of the original EMATUM loan and omitted certain other facts concerning
the EMATUM Exchange. Credit Suisse ignored or only nominally addressed
a number of red flags in connection with these transactions.
24. On or about August 30, 2013, Credit Suisse agreed to move
forward with the EMATUM transaction. In addition to Credit Risk
Management, the European Investment Banking Committee, Reputational
Risk, and the Compliance and Anti-Money Laundering functions considered
the transaction, and agreed to allow the EMATUM transaction to go
forward. The CSSEL Statement of Facts indicates that after Credit
Suisse transferred the funds raised to finance EMATUM to Privinvest,
Privinvest secretly paid millions of dollars to three of the
signatories on the EMATUM deal--Singh, Do Rosario, and Chang.
25. Credit Suisse approved the EMATUM loan notwithstanding the fact
that its earlier due diligence process for ProIndicus had identified
significant risks of bribery and the size of the project had expanded
greatly without apparent justification, and Credit Suisse, through
Pearse, Singh, and Subeva, knew that Privinvest had paid kickbacks to
Pearse in connection with the ProIndicus transaction, and would pay
further kickbacks to Pearse and Singh in connection with the EMATUM
loan.
26. Credit Suisse sent potential investors materials that included
the EMATUM loan agreement and marketing materials such as the offering
circular (the LPN Investor Documents), notwithstanding the fact that
the LPN Investor Documents represented that the loan proceeds would be
used exclusively to fund the EMATUM project, and that none of the
proceeds would be used to pay bribes or kickbacks. For example, (a)
Pearse and Singh knew that they would receive millions of dollars in
illegal kickback payments from Privinvest in connection with the EMATUM
loan while employed by Credit Suisse; (b) Firm 1 had expressly warned
Credit Suisse about Privinvest and Privinvest Co-Conspirator 1's
history of corruption and bribery; and (c) a senior Credit Suisse
executive had previously said ``no'' to Pearse to the combination of
Privinvest Co-Conspirator 1 and Mozambique in November 2012.\20\
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\20\ The CSSEL Statement of Facts did not identify Privinvest
Co-conspirator 1 or Firm 1 other than that Firm 1 was a ``diligence
firm'' used by Credit Suisse.
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27. Despite the use of proceeds concerns raised by the significant
valuation shortfall and other previously identified red flags, which
underscored the risk that the EMATUM proceeds had been used for
corruption and bribery, Credit Suisse approved the EMATUM Exchange.
Although Credit Suisse did disclose in investor documents that it had
been ``widely reported in the press that the proceeds of the [LPNs] had
been used in part to purchase defense equipment,'' and that
``subsequent press reports [had] also called into question whether all
of the proceeds of the [LPNs] were used for authorized or appropriate
purposes,'' Credit Suisse did not disclose any of the information it
had about the significant shortfall between the price Privinvest
charged EMATUM for the purchase of assets and the value of those
assets. In the EMATUM Exchange documentation, Credit Suisse also: (a)
Included false and misleading statements regarding the use of proceeds
of the original EMATUM loans; (b) failed to disclose kickbacks to
Singh, Pearse, and Subeva, of which Singh was aware; (c) did not
disclose any of the information Credit Suisse had about the significant
shortfall between the price Privinvest charged EMATUM for the 27 boats
and the fair market value of those boats; and (d) failed to disclose
the existence of the ProIndicus and MAM loans,\21\ and their maturity
dates, and instead disclosed that Credit Suisse and VTB Bank ``have
engaged, and may in the future engage, in investment banking and/or
commercial banking transactions with, and have performed and continue
to perform services for the Issuer and its affiliates in the ordinary
course of business for which they have received and for which they will
in the future receive, fees. . . . In particular, an affiliate of
[CSSEL] has a lending relationship with a wholly-owned state entity
whose obligations have the benefit of a guarantee from Mozambique.''
Credit Suisse did disclose, however, that it had been ``widely reported
in the press that the proceeds of the [LPNs] had been used in part to
purchase defense equipment,'' and that ``subsequent press reports [had]
also called into question whether all of the proceeds of the [LPNs]
were used for authorized or appropriate purposes.''
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\21\ MAM was a company owned, controlled, and overseen by the
Government of Mozambique. MAM was created to build and maintain
shipyards.
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28. By agreeing to the EMATUM Exchange, which delayed the EMATUM
loan repayment date, Credit Suisse knew that EMATUM loan participation
[[Page 1191]]
note investors were agreeing to be paid after any other investors in
other Mozambique government loans that matured earlier, such as
ProIndicus. Credit Suisse arranged and was an investor in the
ProIndicus loan. As a result, by extending the EMATUM loan repayment
date through the EMATUM Exchange, Credit Suisse would be repaid on its
investment in the private ProIndicus loan before EMATUM Securities
investors were repaid.
29. During the investor road show for the EMATUM Exchange, Credit
Suisse and Do Rosario and the then-Minister of Finance for Mozambique
did not inform investors of (a) the significant valuation shortfall and
risk that loan proceeds were improperly diverted, including to pay
bribes; (b) the existence or maturity dates of the ProIndicus and MAM
loans; (c) that Mozambique had not disclosed its true level of debt to
the ProIndicus and MAM loans to the International Monetary Fund (IMF);
and (d) kickbacks paid to Credit Suisse bankers in connection with the
EMATUM loan.
30. Under the CSSEL Plea Agreement, CSSEL agreed, among other
things, as follows: First, that CSSEL shall cooperate fully with the
Offices in any and all matters relating to the conduct described in the
CSSEL Plea Agreement and the CSSEL Statement of Facts and other conduct
under investigation by the Offices or any other component of the
Department of Justice at any time during the term of the DPA (the Term)
until the later of the date upon which all investigations and
prosecutions arising out of such conduct are concluded or the end of
the Term. Second, at the request of the Offices, CSSEL shall also
cooperate fully with other domestic or foreign law enforcement and
regulatory authorities and agencies, as well as the Multilateral
Development Banks in any investigation of CSSEL, CSG, its affiliates,
or any of its present or former officers, directors, employees, agents,
and consultants, or any other party, in any and all matters relating to
the conduct described in the CSSEL Plea Agreement and the CSSEL
Statement of Facts and any other conduct under investigation by the
Offices or any other component of the DOJ. Third, should CSSEL learn
during the Term of any evidence or allegations of conduct that may
constitute a violation of the federal wire fraud statute had the
conduct occurred within the jurisdiction of the United States, CSSEL
shall promptly report such evidence or allegation to the Offices. CSSEL
also agreed to commit no further crimes and to work with Credit Suisse
in fulfilling the obligations of CSG's DPA.
Impacted Investors
31. The Applicant represented to the Department that the LPNs were
distributed from Credit Suisse's UK operations via CSSEL into
international capital markets in 2013, to non-U.S. entities, pursuant
to U.S. Securities and Exchange Commission (SEC) Regulation S. Credit
Suisse is aware that the purchasers of those LPNs were made up of hedge
funds, banks, and other institutions, but due to Regulation S, the
purchasers' only obligation was to certify their status as Qualified
Institutional Buyers (QIBs) in the applicable subscription agreements.
The Applicant represents that it is unlikely that Covered Plans were
initial purchasers of those LPNs. According to the Applicant, Credit
Suisse has no way of knowing, and does not know in any systematic
manner, whether (a) the fund owners or investors in the initial
purchasers' funds themselves were Covered Plans, or (b) parties buying
and selling the LPNs in the secondary market were Covered Plans.
32. Furthermore, the Applicant represented that in 2016, LPN
investors had the option to exchange their LPNs for sovereign-issued
Mozambique Exchange Bonds (the Exchange Bonds) issued under either
Regulation S or SEC Rule 144A, in London, England. Credit Suisse
represents that it is unlikely that those investors who chose to
exchange their LPNs for Regulation S bonds, and who must have been QIBs
and non-U.S. entities, were Covered Plans. The 2016 Exchange also
included a Rule 144A tranche into which investors could exchange their
LPNs; however, those buyers also were required to represent that they
were QIBs, and as a result, it is unlikely that their clients were
Covered Plans. According to the information on purchasers which Credit
Suisse does have, at the time of the Exchange, Credit Suisse was aware
that the LPNs, and subsequently, the Eurobonds, were held via either
Euroclear or Clearstream accounts in Europe. While Credit Suisse has
identified a list of the entities that maintained custodial accounts at
Euroclear and Clearstream in connection with those transactions, Credit
Suisse represents that it has no way of knowing the identities of the
ultimate beneficial owners of the LPNs at the time of the Exchange.
33. To the extent that any investor believes that it has suffered
losses in connection with the LPNs or the 2016 Exchange Bonds, Credit
Suisse's resolutions with the SEC and DOJ provide those potentially
damaged investors with two potential avenues through which to receive
compensation, should they be able to support their claims with
sufficient evidence. First, the SEC may set up a ``fair fund'' in
connection with this matter pursuant to 15 U.S.C. 7246, Section 308(a)
of the Sarbanes-Oxley Act of 2002, which would provide up to
$65,000,000 (the civil penalty amounts levied in the underlying SEC
settlement with Credit Suisse in connection with this matter) to
compensate any investor able to prove losses to the SEC. Second, in
connection with the CSSEL Plea, the Mandatory Victim Restitution Act
(MVRA) requires the DOJ to contact potentially harmed investors,
apprise them of their right to compensation from CSSEL if they are able
to prove the charged conduct was the proximate cause of the harm
suffered, and for Credit Suisse to provide that compensation pursuant
to a judicially-administered process. To the extent that investors
claim monetary damages in excess of those amounts provided for in any
SEC Fair Fund, Credit Suisse and the DOJ have agreed to a methodology
for determining investor eligibility and calculating eligible investor
losses, which will be subject to ratification by the court presiding
over CSSEL's sentencing hearing, which currently is scheduled for early
March 2022. Credit Suisse does not currently know which, if any,
potentially impacted investors might file claims on the SEC Fair Fund
or MVRA restitution mechanism.
Department's Note: The Department is particularly interested in
receiving comments from retirement plans or retirement accounts
(including Covered Plans but not limited to retirement plans or
retirement accounts that are subject to ERISA or the Code) that believe
they were impacted by the conduct described above that forms the basis
for the CSSEL Conviction along with the dollar amount of harm incurred.
The Department is also interested in receiving comments on whether the
remedies under the MVRA restitution mechanism or offered through the
SEC Fair Fund are adequate to fully compensate retirement plans and
retirement accounts that suffered losses. To the extent that retirement
plans and retirement accounts are not made whole, the Department seeks
comment on the extent of losses that would remain uncompensated.
The CSG DPA
34. On October 19, 2021, in addition to the CSSEL Plea, the
ultimate parent entity of CSSEL, CSG, entered into a three-year DPA
with the Offices in connection with the same conduct as set forth in
the CSSEL Statement of Facts
[[Page 1192]]
that forms the basis for the CSSEL Plea Agreement.
35. The DPA indicates that CSG admits, accepts, and acknowledges
that it is responsible under United States law for the acts of its
officers, directors, employees, and agents as charged in the CSSEL
Information, and as set forth in the CSSEL Statement of Facts, and that
the allegations described in the CSSEL Information and the facts
described in the CSSEL Statement of Facts are true and accurate.
36. Under the DPA, CSG also agreed to continue to cooperate with
the Offices, to enhance its compliance program and internal controls,
and to provide enhanced reporting to the Offices on CSG's remediation
and compliance program. Among other things, the enhanced reporting
provisions require CSG to meet with the Offices at least quarterly and
to submit yearly reports regarding the status of its remediation
efforts, the results of its testing of its compliance program, and its
proposals to ensure that its compliance program is reasonably designed,
implemented, and enforced so that it is effective in deterring and
detecting violations of fraud, money laundering, the Foreign Corrupt
Practices Act, and other applicable anti-corruption laws.
Department's Note: Interested persons can access the CSG DPA and
related materials at <a href="https://www.justice.gov/opa/pr/credit-suisse-resolves-fraudulent-mozambique-loan-case-547-million-coordinated-global">https://www.justice.gov/opa/pr/credit-suisse-resolves-fraudulent-mozambique-loan-case-547-million-coordinated-global</a>.
Current Exemption Request
37. On October 19, 2021, the Applicant filed an exemption
application with the Department for Credit Suisse Affiliated QPAMs and
Credit Suisse Related QPAMs to continue to rely on PTE 84-14,
notwithstanding the criminal sentencing of CSSEL, which is tentatively
scheduled for March 9, 2022. The Applicant represents that the
exemption will enable the affected Covered Plans to continue their
current investment strategy with their current investment manager or
trustee without disruption. According to the Applicant, if the
Department denies the requested exemption, plans would incur
significant costs if they decide to find other asset managers. The
Applicant states that many of the assets in the accounts could be
difficult to transition, and the interruption of certain investment
strategies, such as stable value, could create significant disruption
for Covered Plans that are 401(k) plans and their participants and
beneficiaries.
38. The Applicant represents that ineligibility from PTE 84-14
would result in hardship to plans (and their participants and
beneficiaries) and that neither the protection of plans and
participants nor the public interest would be served by permitting
Section I(g) ineligibility to apply to the CS Affiliated QPAMs.
According to the Applicant, ineligibility would deprive client plans of
the investment management services (some of which are highly
specialized) that these plans expected to receive when they appointed
these managers, and could result in the termination of relationships
that the fiduciaries of the plans have determined to be in the best
interests of the plans. The Applicant goes on to represent that it
would be disruptive and expensive to cause plan fiduciaries to
reconsider their arrangements with their chosen investment manager
because of uncertainties relating to PTE 84-14. This uncertainty,
according to the Applicant, could disrupt certain investment strategies
and result in significant redemptions from pooled funds, which would
frustrate efforts to effectively manage the pooled funds' assets, harm
remaining plan investors, and increase the expense ratios of the
investment funds.
Department's Note: The Department specifically seeks comments from
ERISA-covered plans and IRAs, as well as the Applicant, on the validity
and magnitude of the costs and harms to Covered Plans as identified by
the Applicant. In this regard, the Department also strongly emphasizes
that a fiduciary's duties of prudence and loyalty under ERISA section
404 apply in the context of hiring, monitoring, evaluating, and
retaining an asset manager, regardless of whether the asset manager
retains the ability to continue relying on PTE 84-14 under a
supplemental individual exemption. A fiduciary's failure to abide by
these duties may give rise to fiduciary liability, including co-
fiduciary liability or personal liability.\22\
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\22\ See ERISA sections 404, 405, and 409.
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39. The Applicant further represents that, with respect to many
Covered Plans, virtually every counterparty may be a service provider
to that plan. Transactions between the Covered Plan and the party-in-
interest service provider would be prohibited under one or more
provisions of ERISA section 406, absent an exemption. The Applicant
states that because counterparties are familiar and comfortable with
PTE 84-14 for a wide variety of transactions, it is generally the most
commonly used prohibited transaction exemption, and the exemption
generally relied on by counterparties as the ``backup'' exemption for
all transactions. Counterparties may provide less advantageous pricing
or may not bid at all where the plan's investment manager is not a
QPAM. Various strategies in which plans and IRAs are managed may depend
significantly on PTE 84-14, including but not limited to stable value,
leveraged loans, domestic and international fixed income and equities,
and strategies that use structured products, options, swaps, and
derivatives.
Department's Note: The Department specifically requests comments
from ERISA-covered plans and IRAs as to the specific costs or harms, if
any, that would flow from denial of the exemption, including evidence
as to any valuable investment opportunities that they would have to
forego, and the basis for concluding that those investments would be
available to plans and IRAs on less advantageous terms.
Applicant's Request for an Exemption With a Ten-Year Duration
40. In its exemption request, the Applicant sought a ten-year
exemption term. However, given the magnitude, gravity, duration and
pervasiveness of Credit Suisse's misconduct, along with numerous Credit
Suisse compliance control failures associated with both the CSAG and
the CSSEL misconduct, the Department is unable to determine that a ten-
year exemption would be in the interest of, and protective of, the
Covered Plans. Therefore, the relief described in this proposed
exemption is limited to one year. If the Applicant seeks additional
exemptive relief, it must submit a new exemption application request
before the end of the exemption's one-year term, assuming this proposed
exemption is ultimately granted. At that time, the Department will
review the application and other information it deems necessary to
determine whether additional relief is warranted. No inference
regarding whether the Department will grant additional relief should be
drawn from the Department's decision to propose this one-year
exemption.
41. The Department is particularly interested in comments from
interested persons, including the Applicant, regarding whether any
additional relief should be limited to an individual exemption that
permits the types of transactions permitted by PTE 84-14, but that does
not otherwise allow Credit Suisse asset managers to refer to themselves
as QPAMs under PTE 84-14, with respect to Covered Plans that
[[Page 1193]]
become clients following the CSSEL Conviction Date.
Department's Note: The Department specifically requests comment
from interested persons regarding any other investigations or
misconduct (including any alleged misconduct) that Credit Suisse is a
party to which may result in criminal prosecution.
The Exemption's Protective Conditions
42. In developing administrative exemptions under ERISA section
408(a), the Department implements its statutory directive to grant only
exemptions that are appropriately protective of, and in the interest
of, affected plans and IRAs. The Department is proposing this exemption
with a number of protective conditions that would protect Covered Plans
(and their participants and beneficiaries) and allow them to continue
to utilize the services of the CS Affiliated and Related QPAMs. If this
proposed exemption is granted as proposed, it would allow Covered Plans
to avoid the costs and disruption to investment strategies that may
arise if such plans and IRAs are forced, on short notice, to hire a
different QPAM or asset manager because the CS Affiliated and Related
QPAMs are no longer able to rely on the relief provided by PTE 84-14
and PTE 2019-07 due to the CSSEL Conviction. Covered Plan fiduciaries
are cautioned that the Department's decision to propose this exemption
should not be taken, in any way, as an indication that Credit Suisse
asset managers will receive additional exemptive relief.
43. It is a material condition of this exemption that the CS
Affiliated QPAMs and the CS Related QPAMs (including their officers,
directors, agents other than CSG, CSAG, and CSSEL, employees of such
QPAMs, and CSAG employees that do work for CS Affiliated or Related
QPAMs) did not know or have reason to know of, and did not participate
in the criminal conduct of CSAG and CSSEL that is the subject of either
the CSAG or CSSEL Conviction. Further, any other party engaged on
behalf of the CS Affiliated QPAMs and CS Related QPAMs who had
responsibility for, or exercised authority in connection with the
management of plan assets did not know or have reason to know of, and
did not participate in the criminal conduct that is the subject of
either the CSAG or CSSEL Conviction.
44. The protective conditions in this proposed exemption include a
requirement that the CS Affiliated QPAMs do not currently and may not
in the future employ or knowingly engage any of the individuals who
participated in the criminal conduct of CSAG or CSSEL that is the
subject of the CSAG or CSSEL Conviction.
45. This proposed exemption requires that no CS Affiliated QPAM may
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 to enter into any transaction with CSAG or CSSEL, or to engage
CSAG or CSSEL to provide any service to 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. Other than with respect to employee benefit plans maintained
or sponsored for its own employees or the employees of an affiliate,
neither CSAG nor CSSEL may act as a fiduciary within the meaning of
ERISA section 3(21)(A)(i) or (iii), or Code section 4975(e)(3)(A) and
(C), with respect to Covered Plan assets.
46. Each CS Affiliated QPAM must continue to maintain, adjust to
the extent necessary, implement, and follow written policies and
procedures (the Policies) that are reasonably designed to ensure: (a)
That the asset management decisions of the CS Affiliated QPAMs are
conducted independently of CSAG and CSSEL's corporate management and
business activities; (b) that the CS Affiliated QPAMs fully comply with
ERISA's fiduciary duties and with ERISA's and the Code's prohibited
transaction provisions; (c) that the CS Affiliated QPAMs do not
knowingly participate in any other person's violation of ERISA or the
Code with respect to Covered Plans; (d) that any filings or statements
made by the CS Affiliated QPAMs to regulators on behalf of, or in
relation to, Covered Plans are materially accurate and complete; (e)
that the CS Affiliated QPAMs do not make material misrepresentations or
omit material information in their communications with such regulators,
or in their communications with Covered Plans; and (f) that the CS
Affiliated QPAMs comply with the terms of the exemption.
47. This proposed exemption requires each CS Affiliated QPAM to
maintain, adjust to the extent necessary, and implement a program of
training (the Training), to be conducted at least annually, for all
relevant asset/portfolio management, trading, legal, compliance, and
internal audit personnel. This required Training must, at a minimum,
cover the Policies, ERISA and Code compliance, ethical conduct, the
consequences for not complying with the conditions described in this
proposal, and the requirement for prompt reporting of wrongdoing.
48. This proposed exemption requires that each CS Affiliated QPAM
submit to an audit, conducted by an independent auditor, to evaluate
the adequacy of and compliance with, the Policies and Training required
by the exemption, as described below. The independent auditor must be
prudently selected and have appropriate technical training and
proficiency with ERISA and the Code to perform the tasks required by
the exemption. The CS Affiliated QPAMs must grant the auditor
unconditional access to their business, and the auditor's engagement
must specifically require the auditor to test each CS Affiliated QPAM's
operational compliance with the Policies and Training.
49. The independent auditor must issue a written audit report (the
Audit Report) to CSAG and the CS Affiliated QPAM to which the audit
applies, that describes the procedures performed by the auditor in
connection with its examination. Further, the CS Affiliated QPAMs must
promptly address any identified noncompliance, and 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. The Audit
Report must also be provided to the Department and will be made a part
of the public record regarding this one-year exemption.
50. This proposed exemption further requires the General Counsel,
or one of the three most senior executive officers of the CS Affiliated
QPAM to which the Audit Report applies, to certify in writing, under
penalty of perjury, that the officer has reviewed the Audit Report and
the exemption, and that the CS Affiliated QPAM has addressed,
corrected, and remedied (or has an appropriate written plan to address)
any identified instance of noncompliance or inadequacy regarding the
Policies and Training identified in the Audit Report.
51. With respect to any arrangement, agreement, or contract between
a CS Affiliated QPAM and a Covered Plan, this proposal requires the CS
Affiliated QPAMs to agree and warrant: (a) To comply with ERISA and the
Code, including the standards of prudence and loyalty set forth in
ERISA section 404; (b) to refrain from engaging in prohibited
transactions that are not otherwise exempt; (c) to indemnify and hold
harmless the Covered Plan for any actual losses resulting directly
from, among other things, the CS Affiliated
[[Page 1194]]
QPAM's violation of ERISA's fiduciary duties; (d) with narrow
exceptions, to not restrict the ability of such 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; (e) with narrow
exceptions, to not impose any fees, penalties, or charges for such
termination or withdrawal; and (f) to not include exculpatory
provisions disclaiming or otherwise limiting the liability of the CS
Affiliated QPAM for a violation of such agreement's terms.
52. Each CS Affiliated QPAM must provide a notice of its
obligations under this exemption to each Covered Plan. Each CS
Affiliated QPAM also must provide to each sponsor and beneficial owner
of a Covered Plan a copy of the notice of the exemption as published in
the Federal Register, a separate summary describing the facts that led
to the CSAG and CSSEL Conviction (the Summary), and a prominently
displayed statement (the Statement) that the CSAG and CSSEL Conviction
each results in a failure to meet a condition in PTE 84-14 and that the
CSSEL Conviction results in a failure to meet a condition in PTE 2019-
07.
53. This proposed exemption requires each CS Affiliated QPAM,
consistent with PTE 2019-07 to maintain a designated senior compliance
officer (the Compliance Officer) who will be responsible for compliance
with the Policies and Training requirements described in this proposed
exemption. The Compliance Officer must conduct a review, for the
twelve-month period that begins on November 21, 2021 (the Exemption
Review), to determine the adequacy and effectiveness of the
implementation of the Policies and Training, and issue a written report
(the Exemption Report) on the findings.
54. This proposal requires Credit Suisse to impose internal
procedures, controls, and protocols on CSAG and CSSEL to reduce the
likelihood of any recurrence of conduct that is the subject of the CSAG
and CSSEL Convictions.
Statutory Findings
55. ERISA section 408(a) 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.
56. ``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 each CS Affiliated QPAM's compliance
with the terms of the exemption, and a corresponding written audit
report will be provided to the Department and be made available to the
public. The independent audit will provide an incentive for compliance
while reducing the immediate need for review and oversight by the
Department.
57. ``In the interest of.'' The Department has tentatively
determined that the proposed exemption is in the interests of the
participants and beneficiaries of affected Covered Plans. It is the
Department's understanding, based on representations from the
Applicant, that if the requested exemption is denied, Covered Plans may
be forced to find other managers, at significant costs to the Covered
Plans. According to the Applicant, ineligibility under Section I(g) of
PTE 84-14 would deprive the Covered Plans of the investment management
services that these plans expected to receive when they appointed these
managers, and could result in the termination of relationships that the
fiduciaries of the Covered Plans have determined to be in the best
interests of those plans.
58. ``Protective of.'' The Department has tentatively determined
that the proposed exemption is protective of the interests of the
participants and beneficiaries of affected Covered Plans. As described
above, the proposed exemption is subject to a suite of conditions
including but not limited to: (a) The development and maintenance of
the Policies; (b) the implementation of the Training; (c) a robust
audit conducted by a qualified independent auditor; (d) the provision
of certain agreements and warranties on the part of the CS Affiliated
QPAMs; (e) specific notices and disclosures concerning the
circumstances necessitating the need for exemptive relief and the CS
Affiliated QPAMs' obligations under this proposed exemption; and (f)
the designation of a Compliance Officer with responsibility to ensure
compliance with the Policies and Training requirements under this
proposed exemption, and the Compliance Officer's completion of an
Exemption Review and corresponding Exemption Report. Further, no
person, including any person referenced in the CSAG or CSSEL Statement
of Facts that gave rise to the CSAG or CSSEL Plea Agreement, who knew
of, or should have known of, or participated in, any misconduct
described in the CSAG or CSSEL Statement of Facts, by any party, may
provide the certification required by this exemption, unless the person
took active documented steps to stop the misconduct.
Summary
59. This proposed one-year exemption provides relief from certain
of the restrictions set forth in ERISA section 406 and Code Section
4975(c)(1). No relief or waiver of a violation of any other law is
provided by the exemption. The relief in this proposed one-year
exemption would terminate immediately if, among other things, an entity
within the CSAG corporate structure is convicted of any crime covered
by Section I(g) of PTE 84-14 (other than the CSAG Conviction or the
CSSEL Conviction). While such an entity could request a new exemption
in that event, the Department is not obligated to grant the request.
Consistent with this proposed exemption, the Department's consideration
of additional exemptive relief is subject to the findings required
under ERISA section 408(a) and Code section 4975(c)(2).
60. When interpreting and implementing this exemption, the
Applicant and the CS 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.
61. Based on the conditions that are included in this proposed
exemption, the Department has tentatively determined that the relief
sought by the Applicant would satisfy the statutory requirements for an
individual exemption under ERISA Section 408(a) and Code Section
4975(c)(2).
Notice to Interested Persons
Notice of the proposed exemption will be provided to all interested
persons within ten (10) days of the publication of the notice of
proposed one-year exemption in the Federal Register. The notice will be
provided to all interested persons in the manner approved by the
Department 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 (40) days of the date
of publication of this proposed one-year
[[Page 1195]]
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 ERISA and/or Code section 4975(c)(2) does not
relieve a fiduciary or other party in interest or disqualified person
from certain other provisions of ERISA and/or the Code, including any
prohibited transaction provisions to which the exemption does not apply
and the general fiduciary responsibility provisions of ERISA section
404, 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 ERISA section 404(a)(1)(B); nor does it affect the requirement of
Code section 401(a) 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 ERISA section 408(a)
and/or Code section 4975(c)(2), 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 ERISA and/or the
Code, including statutory or administrative exemptions and transitional
rules. Furthermore, the fact that a transaction is subject to an
administrative or statutory exemption is not dispositive of whether the
transaction is in fact a prohibited transaction; and
(4) The proposed exemption, if granted, will be subject to the
express condition that the material facts and representations contained
in each application are true and complete, and that each application
accurately describes all material terms of the transaction which is the
subject of the exemption.
Proposed Exemption
The Department is considering granting a one-year exemption under
the authority of ERISA section 408(a) and Internal Revenue Code (or
Code) section 4975(c)(2), and in accordance with the procedures set
forth in 29 CFR part 2570, subpart B (76 FR 66637, 66644, October 27,
2011).\23\ Effective December 31, 1978, section 102 of Reorganization
Plan No. 4 of 1978, 5 U.S.C. App. 1 (1996), transferred the authority
of the Secretary of the Treasury to issue exemptions of the type
requested to the Secretary of Labor. Therefore, this notice of proposed
exemption is issued solely by the Department.
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\23\ For purposes of this proposed one-year exemption,
references to ERISA section 406, unless otherwise specified, should
be read to refer as well to the corresponding provisions of Code
section 4975.
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Section I. Definitions
(a) The term ``Convictions'' means (1) 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 (the CSAG Conviction); and (2) the judgment of conviction against
CSSEL, when it is entered, in Case Number 1:21-cr-00520-WFK (the CSSEL
Conviction).
(b) The term ``Covered Plan'' means a plan subject to Part IV of
Title I of ERISA (an ``ERISA-covered plan'') or a plan subject to Code
section 4975 (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 ``CSSEL'' means Credit Suisse Securities (Europe)
Limited.
(e) The term ``CS Affiliated QPAM'' means Credit Suisse Asset
Management, LLC (CSAM LLC) and Credit Suisse Asset Management Limited
(CSAM Ltd.) and any current or future ``affiliate'' of CSAG or CSSEL
(as defined in Part VI(d) of PTE 84-14) that qualifies as a ``qualified
professional asset manager'' (as defined in Section VI(a) of PTE 84-14)
\24\ and that relies on the relief provided by PTE 84-14 and with
respect to which CSAG or CSSEL 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 CSAG and CSSEL.
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\24\ In general terms, a QPAM is an independent fiduciary that
is a bank, savings and loan association, insurance company, or
investment adviser that meets certain equity or net worth
requirements and other licensure requirements and that has
acknowledged in a written management agreement that it is a
fiduciary with respect to each plan that has retained the QPAM.
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(f) 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 or CSSEL owns a direct or indirect five (5)
percent or more interest, but with respect to which CSAG or CSSEL is
not an ``affiliate'' (as defined in section VI(d)(1) of PTE 84-14) The
term ``CS Related QPAM'' excludes CSAG and CSSEL.
(g) The term ``Exemption Period'' means the one-year period that
begins on the date of the CSSEL Conviction.
(h) The term ``CSAG Plea Agreement'' means the plea agreement
entered into between the United States of America, by and through the
United States Department of Justice, and the United States Attorney's
Office for the Eastern District of Virginia, and CSSEL in Case Number
1:14-cr-188-RBS.
(i) The term ``CSSEL Plea Agreement'' means the plea agreement
entered into between the United States of America, by and through the
United States Department of Justice, Criminal Division, Money
Laundering and Asset Recovery Section and Fraud Section, and the United
States Attorney's Office for the Eastern District of New York, and
CSSEL in Case Number 1:21-cr-00520-WFK.
Section II. Covered Transactions
If this proposed exemption is granted, the CS Affiliated QPAMs, as
defined in Section I(d), will not be precluded from relying on the
exemptive relief provided by Prohibited Transaction Class Exemption 84-
14 (PTE 84-14) \25\ during
[[Page 1196]]
the Exemption Period, notwithstanding the ``Convictions'' against CSAG
and CSSEL (as defined in Section I(a)), provided that the conditions in
Section III are satisfied.
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\25\ 49 FR 9494 (March 13, 1984), as corrected at 50 FR 41430,
(Oct. 10, 1985), as amended at 70 FR 49305 (Aug. 23, 2005), and as
amended at 75 FR 38837 (July 6, 2010).
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Section III. Conditions
(a) The CS Affiliated QPAMs and the CS Related QPAMs (including
their officers, directors, agents other than CSG, CSAG, and CSSEL,
employees of such QPAMs, and CSAG employees that do work for CS
Affiliated or Related QPAMs described in subparagraph (d) below) did
not know or did not have reason to know of, and did not participate in
the criminal conduct of CSAG and CSSEL that is the subject of the
Convictions. Further, any other party engaged on behalf of the CS
Affiliated QPAMs and CS Related QPAMs who had responsibility for, or
exercised authority in connection with the management of plan assets
did not know or have reason to know of, and did not participate in the
criminal conduct that is the subject of the Convictions. For purposes
of this exemption, including paragraph (c) below, ``participate in''
refers not only to active participation in the criminal conduct of CSAG
and CSSEL that is the subject of the Convictions, 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 the individual's supervisors, and to the Board of Directors.
(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)(3) below) did
not receive direct compensation, or knowingly receive indirect
compensation, in connection with the criminal conduct of that is the
subject of the Convictions. Further, any other party engaged on behalf
of the CS Affiliated QPAMs and the CS Related QPAMs who had
responsibility for, or exercised authority in connection with the
management of plan assets did not receive direct compensation, or
knowingly receive indirect compensation, in connection with the
criminal conduct of that is the subject of the subject of the
Convictions;
(c) The CS Affiliated QPAMs do not currently and will not in the
future employ or knowingly engage any of the individuals who
participated in the criminal conduct of CSAG and CSSEL that is the
subject of the Convictions;
(d) At all times during the Exemption Period, no CS Affiliated QPAM
will use its authority or influence to direct an ``investment fund''
(as defined in Section VI(b) of PTE 84-14) that is subject to ERISA or
the Code and managed by such CS Affiliated QPAM with respect to one or
more Covered Plans, to enter into any transaction with CSAG or CSSEL or
to engage CSAG or CSSEL 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 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 Convictions;
(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 Code section 4975 (an IRA) in a manner
that it knew or should have known would further the criminal conduct
that is the subject of the Convictions; or cause the CS Affiliated QPAM
or CS Related QPAM or its affiliates to directly or indirectly profit
from the criminal conduct that is the subject of the Convictions;
(g) Neither CSAG nor CSSEL will act as a fiduciary within the
meaning of ERISA section 3(21)(A)(i) or (iii), or Code section
4975(e)(3)(A) and (C), with respect to ERISA-covered Plan and IRA
assets, except that each 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. Neither CSAG nor CSSEL will be treated
as violating the conditions of the exemption solely because it acted as
an investment advice fiduciary within the meaning of ERISA section
3(21)(A)(ii) or Code section 4975(e)(3)(B);
(h)(1) Each CS Affiliated QPAM must maintain, adjust (to the extent
necessary), implement, and follow the written policies and procedures
described below (the Policies). Notwithstanding the preceding sentence,
a CS Affiliated QPAM may not engage in any transaction or arrangement
described in Section III(d)(1) through (3) of this exemption before the
date the Policies below have been developed, implemented, and followed.
The Policies must require and must be reasonably designed to ensure
that:
(i) The asset management decisions of the CS Affiliated QPAM are
conducted independently of CSAG's and CSSEL'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
other than CSSEL;
(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, 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 that 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 one-
year exemption, and CSAG complies with the terms of Section III(d)(2);
[[Page 1197]]
(2) Any violation of, or failure to comply with an item in
subparagraphs (h)(1)(ii) through (vi), is corrected as soon as
reasonably possible upon discovery, or as soon after the QPAM
reasonably should have known of the noncompliance (whichever is
earlier), and any such violation or compliance failure not so corrected
is reported, upon the discovery of such failure to so correct, in
writing. This report must be made to the head of compliance and the
general counsel (or their functional equivalent) of the relevant CS
Affiliated QPAM that engaged in the violation or failure, 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 CS
Affiliated QPAM reasonably should have known of the noncompliance
(whichever is earlier), and provided that it adheres to the reporting
requirements set forth in this subparagraph (2);
(3) Each CS Affiliated QPAM must maintain, adjust (to the extent
necessary), and implement or continue a program of training during the
Exemption Period (the Training), to be 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 exemption (including any loss of exemptive
relief provided herein), and the requirement for 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 to perform the tasks required by this exemption; and
(iii) Be conducted in-person, electronically, or via a website;
(i)(1) Each CS Affiliated QPAM submits to an audit by an
independent auditor, who has been prudently selected and who has
appropriate technical training and proficiency with ERISA 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 audit must cover the 12-month
period that begins on November 21, 2021. The audit must be completed no
later than 180 days after the period to which it applies (May 19,
2023);
(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 one-year exemption, and has developed and
implemented the Training, as required herein;
(4) The auditor's engagement must specifically require the auditor
to test each CS Affiliated QPAM's operational compliance with the
Policies and Training. In this regard, the auditor must test, for each
CS Affiliated QPAM, a sample of such: (1) 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 such CS Affiliated 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 III(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 in connection with 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 each CS Affiliated QPAM's Policies and
Training; each 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 III(h)
above. The CS Affiliated QPAM 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 III(i)(7) below). In the event such
a plan of action to address the auditor's recommendation regarding the
adequacy of the Policies and Training is not completed by the time of
submission of the Audit Report, the following period's Audit Report
must state whether the plan was satisfactorily completed. Any
determination by the auditor that a 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 Annual Exemption Report created by
the Compliance Officer, as described in Section III(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 III(i)(3) and (4) above; and
(ii) The adequacy of the Exemption Review described in Section
III(m);
(6) 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;
(7) With respect to the Audit Report, 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 exemption; that, to the best of such
[[Page 1198]]
officer's knowledge at the time, the CS Affiliated QPAM has addressed,
corrected, and 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. This
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 with the
applicable provisions of ERISA and the Code. Notwithstanding the above,
no person, including any person referenced in the CSAG or CSSEL
Statement of Facts that gave rise to the CSAGE or CSSEL Plea Agreement,
who knew of, or should have known of, or participated in, any
misconduct described in the CSAG or CSSEL Statement of Facts, by any
party, may provide the certification required by this exemption, unless
the person took active documented steps to stop the misconduct;
(8) A copy of the Audit Report must be provided CSAG's Board of
Directors and either the Risk Committee or the Audit Committee of
CSAG's Board of Directors; and a senior executive officer at either the
Risk Committee or the Conduct and Financial Crime Control Committee
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 provides its certified Audit Report, by
regular mail to: Office of Exemption Determinations (OED), 200
Constitution Avenue NW, Suite 400, Washington, DC 20210, or by private
carrier to: 122 C Street NW, Suite 400, Washington, DC 20001-2109. The
delivery must take place no later than 45 days following completion of
the Audit Report. The Audit Report will be made part of the public
record regarding this one-year exemption. Furthermore, each CS
Affiliated QPAM must make its Audit Reports 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 such agreement;
(11) The auditor must provide the Department, upon request, for
inspection and review, access to all the workpapers created and used in
connection with the audit, provided such access, inspection, and review
is otherwise permitted by law; and
(12) CSAG and/or the CS Affiliated QPAM 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 involving the terminated auditor
and CSAG and/or the CS Affiliated QPAMs;
(j) As of the effective date of this one-year exemption, with
respect to any arrangement, agreement, or contract between a CS
Affiliated QPAM and a Covered Plan, CS Affiliated QPAM agrees and
warrants to Covered Plans:
(1) To comply with ERISA and the Code, as applicable with respect
to such Covered Plan; to refrain from engaging in prohibited
transactions that are not otherwise exempt (and to promptly correct any
prohibited transactions); and to comply with the standards of prudence
and loyalty set forth in ERISA section 404 with respect to each such
ERISA-covered plan and IRA to the extent that ERISA 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 QPAM to qualify for the exemptive relief
provided by PTE 84-14 as a result of a violation of Section I(g) of PTE
84-14 other than the Convictions. This condition applies only to actual
losses caused by the CS Affiliated QPAM's violations;
(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 CS Affiliated QPAM, with the
exception of reasonable restrictions, appropriately disclosed in
advance, that are specifically designed to ensure equitable treatment
of all investors in a pooled fund in the event such withdrawal or
termination may have adverse consequences for all other investors. In
connection with any such 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 be effective no longer than reasonably necessary to avoid
the adverse consequences;
(5) Not to impose any fees, penalties, or charges for such
termination or withdrawal with the exception of reasonable fees,
appropriately disclosed in advance, that are specifically designed to
prevent generally-recognized abusive investment practices or
specifically designed to ensure equitable treatment of all investors in
a pooled fund in the event such withdrawal or termination may have
adverse consequences for all other investors, provided that such fees
are applied consistently and in a 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 such
agreement's terms. To the extent consistent with ERISA section 410,
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 from acts outside the
control of the CS Affiliated QPAM; and
(7) Within 120 days after the effective date of this one-year
exemption, each CS Affiliated QPAM must provide a notice of its
obligations under this Section III(j) to each Covered Plan. For
prospective Covered Plans that enter into a written asset or investment
management agreement with a CS Affiliated QPAM on or after a date that
is 120 days after the effective date of this exemption, the CS
Affiliated QPAM must agree to its obligations under this Section III(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. For Covered Plans that were provided a
previous form of investment management agreement prior to the effective
date of this exemption, and sign and return such agreement with a CS
Affiliated QPAM within 120 days after the
[[Page 1199]]
effective date of this exemption, the CS Affiliated QPAM shall provide
the documents required by this subsection (j) within ten (10) business
days after receipt of the signed agreement. This condition will be
deemed met for each Covered Plan that received a notice pursuant to PTE
2019-07 that meets the terms of this condition.
(k) Within 60 days after the effective date of this one-year
exemption, each CS Affiliated QPAM provides notice of the exemption as
published in the Federal Register, along with a separate summary
describing the facts that led to the Convictions (the Summary), which
has been submitted to the Department, and a prominently displayed
statement (the Statement) that the Convictions result in a failure to
meet a condition in PTE 84-14 and the CSSEL Conviction results in a
failure to meet a condition in PTE 2019-07, to each sponsor and
beneficial owner of a Covered Plan that has 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. All prospective Covered Plan clients that
enter into a written asset or investment management agreement with a CS
Affiliated QPAM after a date that is 60 days after the effective date
of this exemption must receive a copy of the notice of the exemption,
the Summary, and the Statement before, or contemporaneously with, the
Covered Plan's receipt of a written asset or investment management
agreement from the CS Affiliated QPAM. The notices may be delivered
electronically (including by an email that has a link to the one-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 Convictions. 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 Convictions), relief in this exemption would
terminate immediately;
(m)(1) Within 60 days after the effective date of this exemption,
each CS Affiliated QPAM must designate a senior compliance officer (the
Compliance Officer) who will be responsible for compliance with the
Policies and Training requirements described herein. For purposes of
this condition (m), each relevant line of business within a CS
Affiliated QPAM may designate its own Compliance Officer(s).
Notwithstanding the above, no person, including any person referenced
in the CSAG or CSSEL Statement of Facts that gave rise to the CSAG or
CSSEL Plea Agreement, who knew of, or should have known of, or
participated in, any misconduct described in the CSAG or CSSEL
Statement of Facts, by any party, may be involved with the designation
or responsibilities required by this condition, unless the person took
active documented steps to stop the misconduct. The Compliance Officer
must conduct a review of each twelve month period of the Exemption
Period (the Exemption Review), to determine the adequacy and
effectiveness of the implementation of the Policies and Training. With
respect to the Compliance Officer, the following conditions must be
met:
(i) The Compliance Officer must be a professional who has extensive
experience with, and knowledge of, the regulation of financial services
and products, including under ERISA and the Code; and
(ii) The Compliance Officer must have a direct reporting line to
the highest ranking corporate officer in charge of compliance for the
applicable CS Affiliated QPAM.
(2) With respect to the Exemption Review, the following conditions
must be met:
(i) The Annual Exemption Review includes a review of the CS
Affiliated QPAM's 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 2019-07; 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 the
Exemption Review (an Exemption Report) that (A) summarizes his or her
material activities during the prior year; (B) sets forth any instance
of noncompliance discovered during the prior 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 the 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 described herein are met; (C) any known instance
of noncompliance during the prior year and any related correction taken
to date have been identified in the 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 III(h) above;
(iv) The Exemption Report must be provided to appropriate corporate
officers of CSAG and to each CS Affiliated QPAM to which such report
relates, and to the head of compliance and the general counsel (or
their functional equivalent) of CSAG and the relevant CS Affiliated
QPAM; and the report must be made unconditionally available to the
independent auditor described in Section III(i) above;
(v) The Exemption Review, including the Compliance Officer's
written Annual Exemption Report, must cover the twelve month period
beginning on November 21, 2021. The Annual Review, including the
Compliance Officer's written Report, must be completed within three (3)
months following the end of the period to which it relates;
(n) CSAG imposes its internal procedures, controls, and protocols
on CSAG and CSSEL to reduce the likelihood of any recurrence of conduct
that is the subject of the Convictions;
(o) CSAG complies in all material respects with the requirements
imposed by a U.S regulatory authority in connection with the
Convictions;
(p) Each CS Affiliated QPAM will maintain records necessary to
demonstrate that the conditions of this exemption have been met for six
(6) years following the date of any transaction for which the CS
Affiliated QPAM relies upon the relief in this exemption;
(q) During the Exemption Period, CSAG must: (1) Immediately
disclose to the Department any Deferred Prosecution Agreement (a DPA)
or Non-Prosecution Agreement (an NPA) with the U.S. Department of
Justice, entered into by Credit Suisse Group AG or CSAG or any of its
affiliates (as defined
[[Page 1200]]
in Section VI(d) of PTE 84-14) in connection with conduct described in
Section I(g) of PTE 84-14 or section 411 of ERISA; and (2) immediately
provide the Department with any information requested by the
Department, as permitted by law, regarding the agreement and/or conduct
and allegations that led to the agreement;
(r) Within 60 days after the effective date of this 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.\26\ With respect to this
requirement, the description may be continuously maintained on a
website, provided that such website link to the Policies or Summary
Policies is clearly and prominently disclosed to each Covered Plan;
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\26\ If 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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(s) A CS Affiliated QPAM will not fail to meet the terms of this
one-year exemption solely because a different CS Affiliated QPAM fails
to satisfy a condition for relief described in Sections I(c), (d), (h),
(i), (j), (k), (l), (p) or (r); or if the independent auditor described
in Section III(i) fails to comply with a provision of the exemption
other than the requirement described in Section III(i)(11), provided
that such failure did not result from any actions or inactions of CSAG
or its affiliates; and
(t) All the material facts and representations set forth in the
Summary of Facts and Representations are true and accurate.
Effective Date: This exemption will be in effect for one (1) year,
beginning on the date of the CSSEL Conviction.
George Christopher Cosby,
Acting Director, Office of Exemption Determinations, Employee Benefits
Security Administration, U.S. Department of Labor.
[FR Doc. 2022-00170 Filed 1-7-22; 8:45 am]
BILLING CODE 4510-29-P
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</html>Indexed from Federal Register on January 10, 2022.
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