Notice2022-08306
Exemption for Certain Prohibited Transaction Restrictions Involving Credit Suisse Group AG (CSG or the Applicant), Located in 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
April 19, 2022
Issuing agencies
Labor DepartmentEmployee Benefits Security Administration
Abstract
This document is a notice of exemption issued by the Department of Labor (the "Department") from certain of the prohibited transaction restrictions of the Employee Retirement Income Security Act of 1974 ("ERISA") and the Internal Revenue Code of 1986 (the "Code"). The exemption allows entities with specified relationships to Credit Suisse AG ("CSAG") and Credit Suisse Securities (Europe) Limited ("CSSEL") to continue to rely 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
<html>
<head>
<title>Federal Register, Volume 87 Issue 75 (Tuesday, April 19, 2022)</title>
</head>
<body><pre>
[Federal Register Volume 87, Number 75 (Tuesday, April 19, 2022)]
[Notices]
[Pages 23249-23264]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2022-08306]
-----------------------------------------------------------------------
DEPARTMENT OF LABOR
Employee Benefits Security Administration
[Prohibited Transaction Exemption 2022-01; Exemption Application No. D-
12065]
Exemption for Certain Prohibited Transaction Restrictions
Involving Credit Suisse Group AG (CSG or the Applicant), Located in
Zurich, Switzerland
AGENCY: Employee Benefits Security Administration, Labor.
ACTION: Notice of exemption.
-----------------------------------------------------------------------
SUMMARY: This document is a notice of exemption issued by the
Department of Labor (the ``Department'') from certain of the prohibited
transaction restrictions of the Employee Retirement Income Security Act
of 1974 (``ERISA'') and the Internal Revenue Code of 1986 (the
``Code''). The exemption allows entities with specified relationships
to Credit Suisse AG (``CSAG'') and Credit Suisse Securities (Europe)
Limited (``CSSEL'') to continue to rely on the exemptive relief
provided by Prohibited Transaction Class Exemption 84-14,
notwithstanding the judgments of conviction against CSAG and CSSEL,
described below.
[[Page 23250]]
DATES: The 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.
FOR FURTHER INFORMATION CONTACT: Erin Scott Hesse of the Department at
(202) 693-8546. (This is not a toll-free number.)
SUPPLEMENTARY INFORMATION: On January 10, 2022, the Department
published a notice of proposed exemption in the Federal Register \1\
for certain qualified professional asset managers within the corporate
family of Credit Suisse Group AG (``CSG''), to continue relying on the
class exemptive relief granted in Prohibited Transaction Exemption
(PTE) 84-14 (``PTE 84-14''), for up to one year, notwithstanding the
judgment of conviction against Credit Suisse AG (``CSAG'') and upcoming
judgment of conviction against Credit Suisse Securities (Europe)
Limited (``CSSEL''). The Department is granting this exemption to
ensure that Covered Plans and their participants and beneficiaries are
protected while the Department determines whether additional relief is
warranted.\2\
---------------------------------------------------------------------------
\1\ 87 FR 1186 (Jan. 10, 2022).
\2\ For purposes of this exemption, a ``Covered Plan'' is 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 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. Notwithstanding the above, a CS Affiliated QPAM
may disclaim reliance on QPAM status or PTE 84-14 in a written
modification of a contract, arrangement, or agreement with an ERISA-
covered plan or IRA, where: The modification is made in a bilateral
document signed by the client; the client's attention is
specifically directed toward the disclaimer; and the client is
advised in writing that, with respect to any transaction involving
the client's assets, the CS Affiliated QPAM will not represent that
it is a QPAM, and will not rely on the relief described in PTE 84-
14.
---------------------------------------------------------------------------
The Department stresses that this exemption provides Covered Plans
and CS Affiliated QPAMs with the ability to rely on PTE 84-14 for one
year and that this exemption will terminate at the end of that period.
The grant of this one-year exemption does not imply that the Department
will grant additional relief for the CS Affiliated QPAMs to continue to
rely on the relief in PTE 84-14 beyond the end of this exemption's one-
year term. The Convictions and other alleged Credit Suisse-related
criminal misconduct constitute serious years-long systemic criminal
misconduct that counsels against providing broad relief from ERISA's
prohibited transaction provisions and raises fundamental questions
regarding whether the CS Affiliated QPAMs have sufficient integrity to
warrant their continued reliance on PTE 84-14.
This exemption provides only the relief specified in the text of
the exemption, and only with respect to the criminal convictions or
criminal conduct described herein. It provides no relief from
violations of any law other than the prohibited transaction provisions
of Title I of ERISA and the Code.
The Department intends for the terms of this exemption to promote
adherence by the CS Affiliated QPAMs to basic fiduciary standards under
Title I of ERISA and the Code. The Department's primary objective in
granting this exemption is to ensure that Covered Plans can terminate
their relationships with a CS Affiliated QPAM in an orderly and cost-
effective fashion in the event the fiduciary of a Covered Plan
determines it is prudent to do so. The Department makes the requisite
findings under ERISA section 408(a) and Code Section 4975(c)(2) based
on the Applicant's adherence to all the conditions of the exemption.
Accordingly, affected parties should be aware that the conditions
incorporated in this exemption are, taken as a whole, necessary for the
Department to grant the relief requested by the Applicant. Absent these
or similar conditions, the Department would not have granted this
exemption.
The Applicant requested an individual exemption pursuant to ERISA
section 408(a) and 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). Effective December 31, 1978, section 102 of
the Reorganization Plan No. 4 of 1978, 5 U.S.C. app. 1 (1996),
transferred the authority of the Secretary of the Treasury to issue
administrative exemptions under Code section 4975(c)(2) to the
Secretary of Labor. Accordingly, the Department grants this exemption
under its sole authority.
Written Comments
The Department invited all interested persons to submit written
comments and/or requests for a public hearing with respect to the
notice of proposed exemption (the ``Proposal''). In this regard, the
Applicant was given ten (10) days to provide notice to interested
persons, and all comments and requests for a hearing were due on
February 22, 2022. The Department received two written comments and no
hearing requests. One comment was from the Applicant, as discussed in
more detail below. The other comment was from Senators Elizabeth Warren
and Tina Smith urging the Department to reconsider and rescind the
Proposal. After considering the entire record developed in connection
with the Applicant's exemption request, the Department has determined
to grant the one-year exemption to ensure that affected plans and their
participants are protected, as described below.
Department's Comment
The Department cautions that the relief in this exemption will
terminate immediately if an entity within the CSG corporate structure
is convicted of a crime described in Section I(g) of PTE 84-14 (other
than the judgment of conviction against CSAG and upcoming judgment of
conviction against CSSEL, as further defined below) during the
Exemption Period. Although the CS Affiliated and Related QPAMs could
apply for a new exemption in that circumstance, the Department would
not be obligated to grant the exemption. The Department designed the
terms of this exemption to permit plans to terminate their
relationships in an orderly and cost-effective fashion. Nothing in this
exemption should be construed to suggest that the Department will grant
further relief after the expiration of this one-year exemption. In this
regard, the CS Affiliated QPAMs must manage the assets of Covered Plan
clients consistent with this understanding and in accordance with their
fiduciary obligations under ERISA and the conditions of this one-year
exemption. The Department stresses that complying with their fiduciary
obligations means that the CS Affiliated QPAMs' should advise their
plan and IRA clients to prepare for the possibility that the Department
will not grant further relief at the end of the one-year period and the
ensuing consequences. This also means that the QPAMs should take the
necessary and appropriate steps to ensure their Covered Plan clients
will not be exposed to prohibited transactions and that the QPAMs have
prudent processes in place to comply with the penalty-free withdrawal
and indemnification requirements set forth in Section I(j) of PTE 2019-
07 and Section III(j) of this exemption.
Below, the Department provides the overview of the relevant
convictions, which was published in the
[[Page 23251]]
Department's notice of proposed exemption.\3\
---------------------------------------------------------------------------
\3\ 87 FR 1186 (Jan. 10, 2022).
---------------------------------------------------------------------------
Prior 2014 Conviction of CSAG (the CSAG Conviction) and Related
Exemptions
The CSAG Conviction
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, United States
Code, Section 371. The CSAG Information charged the Applicant and its
subsidiaries, Credit Suisse Fides and Clariden Leu Ltd., with 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.
According to the Statement of Facts filed in the criminal case (the
CSAG Statement of Facts), for decades before 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 \4\ 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.
---------------------------------------------------------------------------
\4\ The CSAG Statement of Facts defined ``Credit Suisse'' to
mean CSAG, its parent, and Switzerland-based subsidiaries and
affiliates, including Clariden Leu.
---------------------------------------------------------------------------
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.
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
In connection with the CSAG Conviction, the Department first
granted PTE 2014-11,\5\ a one-year exemption that 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 QPAMs.\6\ Before the expiration of PTE 2015-
14, the Department granted PTE 2019-07, which would have provided the
final five-years of relief CS Affiliated needed in connection with the
CSAG Conviction.\7\
---------------------------------------------------------------------------
\5\ 79 FR 68716 (Nov. 18, 2014).
\6\ 80 FR 59817 (Oct. 2, 2015). PTE 2015-14 provided relief to
the CS Related QPAMs for the entire remainder of the ineligibility
period.
\7\ See 84 FR 61928 (Nov. 14, 2019).
---------------------------------------------------------------------------
Impending Conviction of CSSEL (the CSSEL Conviction) and CSG Deferred
Prosecution Agreement (DPA)
The CSSEL Conviction
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. As of the date of this
publication, the CSSEL sentencing date is scheduled for May 13, 2022.
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.
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.
According to the Statement of Facts (the CSSEL Statement of Facts)
\8\ that
[[Page 23252]]
accompanied the CSSEL Plea Agreement,\9\ 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 bond (EMATUM \10\
Exchange) (collectively, the EMATUM Securities) in 2016.
---------------------------------------------------------------------------
\8\ 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.
\9\ 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.
\10\ 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.
---------------------------------------------------------------------------
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 \11\ 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.
---------------------------------------------------------------------------
\11\ The CSSEL Statement of facts defined ``Credit Suisse'' to
mean CSG together with its wholly-owned subsidiaries and affiliated
entities.
---------------------------------------------------------------------------
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,\12\ 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
\13\ and EMATUM.
---------------------------------------------------------------------------
\12\ Privinvest was a holding company based in Abu Dhabi, United
Arab Emirates. Privinvest was engaged in shipbuilding of various
types of vessels.
\13\ 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.
---------------------------------------------------------------------------
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.
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.
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.
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.\14\
---------------------------------------------------------------------------
\14\ 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.
---------------------------------------------------------------------------
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,\15\ 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
[[Page 23253]]
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.''
---------------------------------------------------------------------------
\15\ MAM was a company owned, controlled, and overseen by the
Government of Mozambique. MAM was created to build and maintain
shipyards.
---------------------------------------------------------------------------
By agreeing to the EMATUM Exchange, which delayed the EMATUM loan
repayment date, Credit Suisse knew that EMATUM loan participation 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.
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.
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
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.
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.
The CSG DPA
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 that forms the basis for the CSSEL Plea Agreement.
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.
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>.
Comments From the Applicant--Requested Revisions
I. Revision to Section I(b)
Section I(b) of the Proposal provides:
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
[[Page 23254]]
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.
Applicant's Request: The Applicant requested clarification that a
disclaimer of reliance on QPAM status or PTE 84-14 may be made in a
modification of a contract, arrangement, or agreement with an ERISA-
covered plan or IRA, assuming a bilateral signed document exists, and
the client is advised in writing what it means not to use the QPAM
Exemption. According to the Applicant, if the agreement is bilateral
and in writing, and the client's attention is specifically directed
toward the disclaimer, the Applicant is hopeful that the Department
will deem these conditions sufficiently protective to permit the CS
Affiliated QPAMs to disclaim reliance on QPAM status or PTE 84-14 in a
modification of a contract, arrangement, or agreement. Accordingly, the
Applicant requested the following additional language be added to the
end of Section I(b):
Notwithstanding the above, a CS Affiliated QPAM may disclaim
reliance on QPAM status or PTE 84-14 in a written modification of a
contract, arrangement, or agreement with an ERISA-covered plan or
IRA, where: The modification is made in a bilateral document signed
by the client; the client's attention is specifically directed
toward the disclaimer; and the client is advised in writing that,
with respect to any transaction involving the client's assets, the
CS Affiliated QPAM will not represent that it is a QPAM, and will
not rely on the relief described in PTE 84-14.
Department's Response: The Department has revised the exemption
consistent with the Applicant's request.
II. Revision to Section III(i)(8)
Section III(i)(8) of the Proposal provides, in pertinent part:
A copy of the Audit Report must be provided [to] 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.
Applicant's Request: The Applicant requested that the Department
permit certification by the Risk Committee or the Audit Committee,
rather than the Conduct and Financial Crime Control Committee. As
represented by the Applicant, the Audit Committee is uniquely
positioned to receive and review the Audit Report, as its specified
function is to assist the Board of Directors in fulfilling its
oversight role by monitoring and assessing the integrity of Credit
Suisse's financial statements. Among the particular responsibilities of
the Audit Committee is monitoring the qualifications, independence, and
performance of external auditors such as the Independent Auditor
required by the Proposal. The Conduct and Financial Crime Control
Committee does not serve a comparable purpose. Its function is solely
to manage Credit Suisse's exposure to financial crime risk. The
Applicant submitted that the Audit Committee is better suited to
fulfill the objectives of the exemption condition. Accordingly, the
Applicant requested that the reference to the Conduct and Financial
Crime Control Committee be replaced with the Audit Committee. In
addition, to the extent that these committees include only independent
Board members and not executive employees, the Applicant requested that
certification be permitted by the chairperson of the committee or the
senior executive officer who acts as liaison with the committee.
Department's Response: The Department has revised the exemption
consistent with the Applicant's request including so that the
chairperson of a committee may provide the certification.
III. Revision to Section III(j)(7)
Section III(j)(7) of the Proposal provides, in relevant part:
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 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.
Applicant's Request: The Applicant requested clarification with
respect to Section III(j)(7), which is intended to deal with new
clients of a CS Affiliated QPAM who were provided an investment
management agreement shortly before or after the Proposal was
published, but in all cases prior to the effective date of the
exemption, if granted. The Applicant requests that where that version
requires modification to meet the terms of the exemption, the CS
Affiliated QPAM may provide amendments required by the exemption that
need not be signed, along with the documents required by the exemption.
The Applicant requested that this part of Section III(j)(7) read:
For new Covered Plans that were provided an investment
management agreement prior to the effective date of this exemption,
returning it within 120 days after the effective date of this
exemption, and that signed investment management agreement requires
amendment to meet the terms of the exemption, the CS Affiliated QPAM
may provide the new Covered Plan with amendments that need not be
signed with any 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.
The Applicant states that handling asset management agreements in
this manner will save affected plans time and money.
Department's Response: The Department has revised the exemption as
requested.
IV. Revision to Section III(o)
Proposed Section III(o) provides ``CSAG complies in all material
respects with the requirements imposed by a U.S regulatory authority in
connection with the Convictions.''
Applicant's Request: The Applicant requests that this condition be
deleted. The Applicant indicated that a number of regulators have
imposed myriad requirements as part of CSAG's plea agreements and
settlements entered into in connection with the Convictions, which are
described in detail in the Applicant's application for exemptive relief
(dated October 19, 2021) and the Applicant's response to the
Department's additional questions (dated December 9, 2021). The
Applicant indicated that conditioning an administrative exemption upon
CSAG's compliance with all such requirements does not further the
objectives of the exemption and, indeed, could have a significant
adverse effect on plans. If CSAG were to fail to meet a minor or
ministerial requirement, the exemption would be lost to plans,
regardless of whether the regulator chose to deal with the failure in a
different, and less draconian, fashion. The Applicant indicated that
the CS Affiliated QPAMs have no control over CSAG and cannot ensure its
compliance with requirements imposed by other regulators. As stated by
the Applicant, the exemption makes the CS Affiliated QPAMs responsible
for their own
[[Page 23255]]
compliance with the exemption, not for the compliance with all other
laws by the rest of Credit Suisse. The Applicant believes that plans
and their fiduciaries should not pay the price for any noncompliance by
the non-asset management divisions of Credit Suisse.
The Applicant also contends that this kind of provision could have
unintended consequences. In support of that contention, the Applicant
indicated that: (1) Any claim by a disgruntled client or employee, or a
competitor, that even the most minor requirements of these ancillary
orders were not met may throw the validity of the exemption into doubt,
causing disruption to the trading with respect to Covered Plans, and
(2) this kind of condition, without notice and hearing, creates the
sort of cliff effect that the Department has sought to avoid. Loss, by
plans, of this trading exemption for failure by a non-asset management
part of Credit Suisse to comply with this condition would serve only to
penalize plans for conduct that is outside their managers' control.
The Applicant added that loss of the exemption would be automatic
upon CSAG's failure to comply with a regulatory requirement. By
contrast, regulators have a broad range of potential responses to a
failure by CSAG or a non-asset management affiliate to comply with its
terms. Each regulator has mechanisms at its disposal, short of
nullifying the terms of the agreement, to ensure CSAG's compliance with
requirements imposed by that regulator and to monitor satisfaction of
them.
The Applicant further explained that there are also bodies of
practice and precedent within other regulatory agencies, which allow
for effective but modulated enforcement responses in the event of a
putative technical breach, that are inconsistent with the
unintentionally severe nature of this proposed QPAM condition. For
example, the responsible regulator may elect to enforce an agreement
without disturbing the agreement itself--for example, requiring
specific performance but leaving the plea agreement or other settlement
intact--whereas this QPAM individual exemption would terminate
immediately upon CSAG's failure to comply. In the Applicant's words,
such a severe result would not be in the interest of or protective of
plans and their participants, and, accordingly, the Applicant requested
that the condition be deleted from the final exemption. Alternatively,
the Applicant requested that if the Department decides to retain this
provision in a final exemption, that it be limited to the conditions of
the plea agreement between CSAG and the Department of Justice.
Department's Response: The Department is not revising the condition
as requested. The Department views CSAG's compliance in all material
respects with the requirements imposed by a U.S. regulatory authority
in connection with the Convictions as indicative of whether CSAG is
acting in accordance with U.S-mandated requirements, after years of
failing to abide by U.S. laws.
However, given the possible costs to Covered Plans that may arise
if the CS Affiliated QPAMs were to suddenly no longer able to rely on
PTE 84-14, the Department has revised the proposed language to provide
that, ``Relief in this exemption will terminate on the date that is six
months following the date that a U.S. regulatory authority makes a
final decision that CSAG failed to comply in all material respects with
any requirement imposed by such regulatory authority in connection with
the Convictions.
Importantly, the Department disagrees with the Applicant's
characterization that ``the exemption makes the CS Affiliated QPAMs
responsible for their own compliance with the exemption, not for the
compliance with all other laws by the rest of Credit Suisse.'' This
individual exemption is primarily focused on the CS Affiliated QPAMs'
compliance with the exemption. The Applicant's statement, however,
ignores the broader purpose and scope of Section I(g), which is
precisely why this individual exemption is needed. This individual
exemption is needed because the Applicant will no longer be able to
rely upon PTE 2019-07 or use PTE 84-14 once the CSSEL Conviction
occurs. The terms of this exemption, therefore, require full compliance
with all of the conditions in PTE 84-14. Viewed through the lens of PTE
84-14, this exemption does not make CS Affiliated QPAMs responsible for
the compliance of the rest of Credit Suisse. Rather, entities that are
covered by the scope of Section I(g) must be vigilant regarding their
behavior, because it may signal larger issues regarding integrity of
all parts of the organization, including its QPAM affiliates or
subsidiaries. The conduct of entities in a position of control or
influence over a QPAM are explicitly within the scope of Section I(g).
For instance, if a QPAM itself were engaged in misconduct or
irregularities that a parent entity became aware of, the Department has
concerns about the parent's willingness to take appropriate corrective
action, particularly in situations where such an entity has failed to
do so with respect to other non-QPAM entities. The Department's
concern, which prompted the Department to included Section III(o) in
the exemption, is consistent with the principle of integrity
underpinning Section I(g) and the foundational principles of PTE 84-14.
Although the Department revised this condition slightly as noted
above, misconduct on behalf of CSAG or other Credit Suisse entities or
failure to comply in all material respects with the requirements
imposed by a U.S regulatory authority in connection with the
Convictions also would be considered relevant to the Department in
connection with any future exemption requests for extended relief from
the Applicant related to Section I(g) ineligibility under exemption.
Department's Revisions
I. Section II
In Section II, the Department added a reference to ``CS Related
QPAMs'' which was inadvertently omitted from the exemption text. Relief
for the CS Related QPAMs was indicated in the preamble of the
Proposal.\16\
---------------------------------------------------------------------------
\16\ See 87 FR 1186 at 1187, 1189, 1192, and 1193.
---------------------------------------------------------------------------
II. Section III(j)(2)
The Department determined that a minor change is necessary to
Section III(j)(2) in order to ensure that Covered Plans are fully and
adequately protected under the exemption. Proposed Section I(j)(2)
provides that the CS Affiliated QPAM must agree and warrant to Covered
Plans:
(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[.]
The Department replaced the reference to ``other than the
Convictions'' with ``other than the CSAG Conviction.'' Since the CS
Affiliated QPAMs are in violation of Section I(g) due to each of the
Convictions, this modification is necessary to assist plans and IRAs
that wish to withdraw from their arrangement with a CS Affiliated QPAM
or recover losses as a result of the second conviction (i.e., the CSSEL
Conviction). The Department did not intend to carve out this important
protection, which was intentionally
[[Page 23256]]
included in PTE 2019-07 to protect Plans from costs associated with
additional misconduct. The Department also emphasizes that it views
actual losses as including losses and related costs arising from
unwinding transactions with third parties and from transitioning Plan
client assets to an alternative asset manager. The Department also
views actual losses as including any exposure on behalf of a QPAM's
Plan clients to excise taxes under Code section 4975 as a result of a
CS Affiliated QPAM's inability to rely upon the relief in PTE 84-14.
II. Section III(k)
Section III(k) of the Proposal provides, in relevant part:
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, . . . 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.
The Department has removed the reference to ``separate.'' This
notice of exemption includes a description of the facts that led to the
Convictions, so the Department determined that a separate Summary is
not needed as long as each QPAM prominently references the pages of the
Federal Register where the Department's summary resides.
III. Section III(s)
The Department corrected a minor typographical error in Section
III(s), which referred to Section I instead of Section III.
Comments From the Applicant--Response to the Department's Requests for
Comment in the Proposal
In the preamble to the Proposal, the Department sought comments
from ERISA-covered plans and IRAs, as well as the Applicant, on a
variety of topics. The Applicant provided responses to three of those
requests. The first request dealt with the validity and magnitude of
the costs and harms to Covered Plans as identified by the Applicant.
The second request dealt with 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 become clients following the
CSSEL Conviction Date. The third request sought comments 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 Department received no
responses from ERISA-covered plans and IRAs. Each heading below
provides the Applicant's response to these comment requests.
I. Validity and Magnitude of Costs and Harms
The Applicant responded that as set forth in the application for
relief, the decision to propose an exemption granting relief will avoid
significant harm to plan clients, and their participants and
beneficiaries, that may result from such clients being compelled to
change managers. According to the Applicant, an adverse decision on the
exemption is seen as the Department's vote of no confidence in a
manager, and thus effectively denies plans their preferred manager,
which in itself is harmful to plans. Unplanned asset manager changes
would cause Covered Plan clients to incur significant costs that they
otherwise would not incur, and that are substantially in excess of the
transaction costs normally associated with transitioning to a different
manager. Under normal circumstances (i.e., if Credit Suisse did not
lose its individual QPAM exemption), clients have generally not felt
compelled to move from Credit Suisse.
In connection with the original exemption issued to the CS
Affiliated QPAMs, the Applicant provided the following cost data, which
it has reviewed to ensure that those data continue to reflect current
market conditions. As of December 2021, CS Affiliated QPAMs manage
institutional separate accounts for four plans covered by ERISA. The
ERISA Covered Plans account for about $350 million assets under
management. CS Affiliated QPAMs also manage three pooled funds trusteed
by third parties, which account for an aggregate $810 million in assets
under management that are subject to ERISA.
According to the Applicant, those clients chose CS Affiliated QPAMs
and continue to use CS Affiliated QPAMs based on reviews of the
Applicant's performance, its legal and compliance structure, and its
controls, among other factors. Assuming such clients could find
adequate replacement managers, those replacements might not have the
comparable depth, experience in all kinds of investment cycles,
consistency--for example, the three most senior investment
professionals in the Credit strategy discussed below have worked
together at Credit Suisse for more than 20 years--or expertise in these
more unusual strategies. Moreover, the costs to those clients of
changing managers could be significant, given their chosen strategies
with Credit Suisse. Within traditional stock and bond investments,
there are hundreds of managers offering similar strategies. In
contrast, fewer managers offer the far more specialized strategies
pursued by the CS Affiliated QPAMs. Smaller still is the number of
managers offering the experience, scale, and performance history of the
CS Affiliated QPAMs.
Additionally, selecting a manager typically involves an array of
steps. These may include manager searches and circulation of requests
for proposals, for which consultants may charge between $25,000 and
$50,000 for these unique strategies; extended operational investment;
due diligence; meetings with portfolio managers and credit analysts;
investment committee approvals; establishment of investment guidelines;
fee negotiations; establishing appropriate data feeds and operational
support; and other contractual negotiations such as for ISDAs and
Master Repurchase Agreements. There are legal costs for the plan and
for the trustee. Altogether, these steps have taken as long as 18
months for some clients. Thus, it may take a plan sponsor a significant
amount of time to find and implement a new manager if it were required
to replace Credit Suisse. Its clients have spent considerable time and
resources conducting manager searches, and they have selected Credit
Suisse. There may also be collateral consequences for the rest of the
plan's portfolio: For example, other strategies within the ERISA plan's
portfolio may need to be changed to accommodate the loss of these
strategies.
The Applicant addressed the specific costs of liquidating four
applicable Credit Suisse strategies: Credit, Commodities, Managed
Futures, and Multi-Alternative.
Credit Strategy
According to the Applicant, there could be substantial costs in
moving to a new Credit manager, which a fiduciary would typically
consider in its evaluation of potentially changing managers. While some
new managers might retain certain or even a majority of the securities
selected by Credit Suisse, others would liquidate the portfolio so that
they can be judged on their own investment choices. Credit Suisse
offers a strategy that is a subset
[[Page 23257]]
within fixed income relating to senior loans, and the number of
managers in that universe is substantially smaller, and smaller still
when one looks to the experience and scale of Credit Suisse's business.
An average bid/ask in this asset class may be up to 50 basis points.
For some unique loans, the spread could approach 250 basis points.
Additionally, one cannot overlook the very real possibility that the
range and credit quality of the investments in a plan's portfolio with
Credit Suisse cannot be replicated with a new manager. In addition,
cash settlement times for leveraged loans, the largest portion of the
Credit business, can typically be three to four weeks.
Commodities Strategy
Another strategy that Credit Suisse runs is a diversified
commodities index strategy. Investors seek exposure to this asset class
as a portfolio diversifier and also use it to potentially hedge against
unexpected inflation risk. Credit Suisse has been managing this
strategy on behalf of institutional clients since 1994 and is one of
the few managers in this space with this amount of experience. Credit
Suisse believes that it is one of the top five asset managers in this
specific field, measured by assets under management. Within its top
five peer group, Credit Suisse offers a highly differentiated
investment process, with lower volatility versus its investment
benchmarks, and a conservative approach to managing the underlying
fixed income collateral. In addition, it offers a highly flexible and
customizable platform that its clients may benefit from to optimize
their portfolio investments.
According to the Applicant, denying the individual exemption could
subject existing ERISA investors to additional expenses if they were to
unwind existing assets. Unwinding this strategy would entail all of the
legal and other general transition costs described above in connection
with the Credit strategy, plus approximately 6-10 basis points to
liquidate investments and reinvest in the new manager's portfolio.
Managed Futures Strategy
The third strategy is the Managed Futures strategy, which
systematically provides exposure to market trends across asset classes,
geographies, and time horizons. Uncorrelated to traditional markets,
Managed Futures aims to generate profits during periods when growth-
risk-exposed assets decline significantly. This profile makes it
potentially a good portfolio diversifier that can help reduce overall
portfolio risk and improve performance, especially in stressed market
scenarios. The strategy, which has a more than five-year track record,
is used as an industry benchmark and consistently ranks as a top
performer versus its peers. While Credit Suisse competes with about a
dozen investment managers in this strategy, each replicates the index
differently, and, thus, changing managers is effectively changing
strategies. In addition to the legal and other transition costs, the
liquidation costs are about 10 basis points, doubled, of course, to 20
basis points, to deal with reinvestment.
Multi-Alternative Strategy
The final strategy is the Multi-Alternative strategy, which seeks
to generate attractive risk-adjusted returns through an allocation
process that combines discretionary insights with systematic investment
tools. It invests across a range of asset classes and alternative
investment styles. The strategy aims to limit correlation to stocks and
bonds, and to manage volatility and drawdown risk. It also strives to
maintain a high degree of liquidity and transparency. Cost efficiency
may increase the strategy's return potential relative to higher-cost
alternative investment options. While Credit Suisse competes with about
a dozen investment managers in this strategy, each replicates the index
differently, and, thus, as with the Managed Futures strategy, changing
managers is effectively changing strategies. In addition to the legal
and other transition costs, the liquidation costs are about 15 basis
points, doubled to 30 basis points to deal with reinvestment.
Department's Note: The Department's request was intended to solicit
actual dollar amounts with respect to the strategies noted above as
well as the impacts on ERISA-covered plans and IRAs, as opposed to
plans not governed by the prohibited transaction provisions of Title I
of ERISA and the Code. While this one-year exemption is intended to
avoid unnecessary costs to Covered Plans as a result of an abrupt loss
of relief under PTE 84-14, the Department wishes to make clear that
specific dollar amounts of such costs, including those associated with
exposure to prohibited transactions, must be provided by the Applicant
in support of any request for relief beyond the end of this one-year
exemption.
II. Restricting Credit Suisse Asset Managers From Referring to
Themselves as QPAMs Under PTE 84-14
The Applicant responded that prohibiting CS Affiliated QPAMs from
referring to themselves as QPAMs to prospective Covered Plan clients
would defeat the purpose of the exemption and is not in the interest of
or protective of such clients. From the Applicant's perspective, the
exemption is intended to provide clients access to one of the most
advantageous trading exemptions while ensuring that they are insulated
from the influence of the bad actors. If the CS Affiliated QPAMs are no
longer able to represent that they are QPAMs, Covered Plan clients are
far less likely to retain the QPAM as their manager, even if they
otherwise would do so. Sophisticated clients know that counterparties
will not enter into certain transactions unless the manager can
represent both that it is a QPAM, and that PTE 84-14 applies.
According to the Applicant, the language proposed suggests that the
CS Affiliated QPAMs could not represent that they were QPAMs in their
communications and representations to counterparties. If that were so,
the entire purpose of the exemption--to make trading more efficient and
advantageous for Covered Plans--would be thwarted.
The Applicant added that, put differently, the ability to make QPAM
representations is critical to the plan fiduciaries' diligence, as
reflected in the Requests for Proposals received by the CS Affiliated
QPAMs and in plan trading. The Applicant feels certain that the
Department would not want to interfere with or hamper the diligence
those fiduciaries are required to conduct or undercut the exemption's
usefulness to plans.
Representing that a manager is a QPAM means that it meets the
definition in Part VI of PTE 84-14--that is a section 3(38) manager,
that it has sufficient net equity, and sufficient assets under
management. While a conviction under Section I(g) prevents a CS
Affiliated QPAM from using PTE 84-14, under the definition in Section
VI, it still is a QPAM. The Applicant indicated that affording the CS
Affiliated QPAMs use of PTE 84-14 to facilitate the strategies that are
most beneficial to their plan clients, in coordination with the
imposition of carefully targeted protective conditions to be assessed
by an independent auditor, serves the plans' interests while protecting
their participants and beneficiaries.
Department's Note: The Applicant appears to misconstrue the larger
structure of a prohibited transaction exemption and its continued
availability only if the requisite conditions are satisfied. The
existence of malfeasance within a corporate family is an important
consideration for plan
[[Page 23258]]
fiduciaries when deciding upon a discretionary asset manager,
particularly one calling itself a QPAM and relying upon PTE 84-14.
Therefore, the ability of a QPAM and its client plans to continue to
rely upon the exemption is directly linked to Section I(g). Regardless
of the plan fiduciary's choice to select Credit Suisse as an asset
manager, the relief under the exemption is tied to the integrity
condition in Section I(g) as a protection not only to plan fiduciaries
but to the plan participants whose benefits are ultimately at risk when
it appears there may be a malfeasance and legal compliance problem
within an entire corporate family. Section I(g) is an integral part of
PTE 84-14 that establishes a level of integrity to justify, in the
Applicant's words, the availability of ``one of the most advantageous
trading exemptions'' and the corresponding ability to don the QPAM
badge. Any client plan that chooses to retain the QPAM as an asset
manager after a loss of relief under PTE 84-14 may do so but would need
to proceed under alternative exemptions or otherwise in full compliance
with the prohibited transaction provisions under Title I of ERISA and
the Code.
Moreover, the Department strongly disagrees that an asset manager's
ability to make QPAM representations is critical to the diligence of
plan fiduciaries. In granting PTE 84-14, the Department did not intend
that an asset manager's ability to rely on PTE 84-14 would constitute a
badge of sophistication or expertise. The class exemption does not
contain any sophistication or expertise standards or requirements, nor
did the Department include any discussion in prior preambles suggesting
that was the intent of any of the exemption's conditions.
Rather, the class exemption was intended as an effective and
efficient means for an asset manager to engage in a wide range of
beneficial plan transactions that are otherwise prohibited by Title I
of ERISA and the Code if the conditions of the exemption are met. Plan
fiduciaries should not view an asset manager's status as a QPAM and
ability to rely upon PTE 84-14 as an endorsement by the Department of
that asset manager, an indication that the asset manager is uniquely
qualified to manage the plan's assets, that the asset manager will be
more likely to act prudently, or that the asset manager is more likely
to act with integrity.
Transactional counterparties that require QPAM status do so for
their own reasons, including reasons that are unrelated to the
interests of and protection of a plan. If a plan fiduciary views an
asset manager's status as a QPAM as beneficial to the management of the
plan's assets, the fiduciary should strongly consider the asset
manager's ability to comply with, and continue to comply with, the
conditions of PTE 84-14 in selecting and/or retaining the QPAM. This
includes monitoring the asset manager's ability to comply with Section
I(g).
The Department is therefore not persuaded that an exemption which
permits transactions that are similar to those covered by PTE 84-14
could not be designed to provide the same efficiencies as PTE 84-14.
The Department is also not persuaded that such an approach would be
harmful to plans managed by asset managers that do not qualify as QPAMs
due to a failure to comply with Section I(g) of the PTE 84-14.
III. Investigations or Misconduct (Including Any Alleged Misconduct)
According to the Applicant, the third question invites the general
public to raise every potential disagreement they may have with any
part of the Credit Suisse worldwide organization, regardless of whether
the conduct is criminal, whether regulators or courts have already
dismissed those claims, whether the claims have even been brought to
the attention of the regulator, whether the commenter is correct that
the conduct could be criminal, and whether the conduct has anything to
do with asset management. The Applicant submits that the granting of
the exemption should not depend upon public allegations of wrongdoing,
regardless of where in the world it occurred, including outside the
separate asset management division and not involving the CS Affiliated
QPAMs.
The Applicant indicated that it brought one matter to the attention
of the Department in 2019. CSAG has been responding to an investigation
by the Swiss Office of the Attorney General (``SOAG'') concerning the
diligence and controls applied to a historical relationship with
Bulgarian former clients who are alleged to have laundered funds
through CSAG accounts. On December 17, 2020, the SOAG brought charges
against CSAG and other parties under Article 102 of the Swiss Criminal
Code. Trial in this matter commenced in the Swiss Federal Criminal
Court on February 7, 2022, and was scheduled to conclude on or about
March 3, 2022. The Applicant represented that Article 102 liability is
not classified as a felony or a misdemeanor under Swiss law and is
outside the scope of section I(g) of PTE 84-14.
The Applicant indicated that other investigations are described in
the Applicant's public securities laws disclosures.
Department's Note: The Department did not indicate in its request
for comment that reporting investigations or misconduct (including any
alleged misconduct) in connection with the exemption request would
cause the Department to deny the exemption. However, investigations or
misconduct founded upon well-verified facts, in particular, are an
appropriate consideration for the Department when determining whether
to grant any exemption. Such information may require, at a minimum,
additional protective conditions to deal with any actual or potential
harm to plans and IRAs that cannot be ignored in light of the statutory
criteria for granting an exemption under ERISA section 408(a) and Code
section 4975(c)(2).
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 ERISA section 408(a) 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 exemption is 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
[[Page 23259]]
statutory exemption is not dispositive of whether the transaction is in
fact a prohibited transaction; and
(4) The exemption is 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.
Accordingly, the following exemption is granted under the authority
of ERISA section 408(a) and 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):
One-Year Exemption
The Department is granting this 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).\17\
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 exemption is issued
solely by the Department.
---------------------------------------------------------------------------
\17\ For purposes of this 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.
---------------------------------------------------------------------------
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 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. Notwithstanding the above, a CS Affiliated
QPAM may disclaim reliance on QPAM status or PTE 84-14 in a written
modification of a contract, arrangement, or agreement with an ERISA-
covered plan or IRA, where: the modification is made in a bilateral
document signed by the client; the client's attention is specifically
directed toward the disclaimer; and the client is advised in writing
that, with respect to any transaction involving the client's assets,
the CS Affiliated QPAM will not represent that it is a QPAM, and will
not rely on the relief described in PTE 84-14.
(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) \18\ 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.
---------------------------------------------------------------------------
\18\ 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.
---------------------------------------------------------------------------
(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
The CS Affiliated QPAMs, as defined in Section I(e), and the CS
Related QPAMs, as defined in Section I(f), will not be precluded from
relying on the exemptive relief provided by Prohibited Transaction
Class Exemption 84-14 (PTE 84-14) \19\ during 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.
---------------------------------------------------------------------------
\19\ 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 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
[[Page 23260]]
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);
(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:
[[Page 23261]]
(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 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 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;
(8) A copy of the Audit Report must be provided to 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 or
chairperson of either the Risk Committee or the Audit Committee must
review the Audit Report for each CS Affiliated QPAM and must certify in
writing, under penalty of perjury, that such person has reviewed each
Audit Report;
[[Page 23262]]
(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, the 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 CSAG Conviction. 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 for 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 new Covered Plans that were
provided an investment management agreement prior to the effective date
of this exemption, returning it within 120 days after the effective
date of this exemption, and that signed investment management agreement
requires amendment to meet the terms of the exemption, the CS
Affiliated QPAM may provide the new Covered Plan with amendments that
need not be signed with any 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 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
[[Page 23263]]
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) Relief in this exemption will terminate on the date that is six
months following the date that a U.S. regulatory authority makes a
final decision that CSAG failed to comply in all material respects with
any requirement imposed by such 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 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.\20\ With respect to this
[[Page 23264]]
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;
---------------------------------------------------------------------------
\20\ 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.
---------------------------------------------------------------------------
(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 Section III(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.
Signed at Washington, DC.
Timothy P. Hauser,
Deputy Assistant Secretary for Program Operations, Employee Benefits
Security Administration, U.S. Department of Labor.
[FR Doc. 2022-08306 Filed 4-18-22; 8:45 am]
BILLING CODE 4510-29-P
</pre></body>
</html>Indexed from Federal Register on April 19, 2022.
This is legal information, not legal advice. Laws vary by jurisdiction and change frequently. Always verify current law with official sources and consult a licensed attorney in your jurisdiction for advice on your specific situation.