Notice2024-03358
Proposed Exemption for DWS Investment Management Americas, Inc. and Certain Current and Future Asset Management Affiliates of Deutsche Bank AG Located in New York, NY
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
February 21, 2024
Issuing agencies
Labor DepartmentEmployee Benefits Security Administration
Abstract
This document provides notice of the pendency before the Department of Labor (the Department) of a proposed individual exemption from certain of the prohibited transaction restrictions of the Employee Retirement Income Security Act of 1974 (ERISA or the Act). This proposed exemption would permit certain qualified professional asset managers within the corporate family of Deutsche Bank AG (Deutsche Bank), including DWS Investment Management Americas Inc. (DIMA or the Applicant), and certain current and future affiliates of Deutsche Bank (each a DB QPAM), to continue to rely on the class exemptive relief granted in Prohibited Transaction Exemption (PTE) 84-14 (PTE 84-14, or the QPAM Exemption), notwithstanding the 2017 criminal conviction of DB Group Services (UK) Limited (DB Group Services).
Full Text
<html>
<head>
<title>Federal Register, Volume 89 Issue 35 (Wednesday, February 21, 2024)</title>
</head>
<body><pre>
[Federal Register Volume 89, Number 35 (Wednesday, February 21, 2024)]
[Notices]
[Pages 13091-13106]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2024-03358]
=======================================================================
-----------------------------------------------------------------------
DEPARTMENT OF LABOR
Employee Benefits Security Administration
[Exemption Application No. D-12090]
Proposed Exemption for DWS Investment Management Americas, Inc.
and Certain Current and Future Asset Management Affiliates of Deutsche
Bank AG Located in New York, NY
AGENCY: Employee Benefits Security Administration, Labor.
ACTION: Notice of proposed exemption.
-----------------------------------------------------------------------
SUMMARY: This document provides notice of the pendency before the
Department of Labor (the Department) of a proposed individual exemption
from certain of the prohibited transaction restrictions of the Employee
Retirement Income Security Act of 1974 (ERISA or the Act). This
proposed exemption would permit certain qualified professional asset
managers within the corporate family of Deutsche Bank AG (Deutsche
Bank), including DWS Investment Management Americas Inc. (DIMA or the
Applicant), and certain current and future affiliates of Deutsche Bank
(each a DB QPAM), to continue to rely on the class exemptive relief
granted in Prohibited Transaction Exemption (PTE) 84-14 (PTE 84-14, or
the QPAM Exemption), notwithstanding the 2017 criminal conviction of DB
Group Services (UK) Limited (DB Group Services).
DATES:
Comments due: Written comments and requests for a public hearing on
the proposed exemption should be
[[Page 13092]]
submitted to the Department by April 8, 2024.
Exemption date: If granted, this exemption will be in effect
beginning on April 18, 2024, and ending on April 17, 2027.
ADDRESSES: All written comments and requests for a hearing should be
submitted to the Employee Benefits Security Administration (EBSA),
Office of Exemption Determinations, Attention: Application No. D-12090
via email to <a href="/cdn-cgi/l/email-protection#66034b2923222602090a48010910"><span class="__cf_email__" data-cfemail="71145c3e343531151e1d5f161e07">[email protected]</span></a> or online through <a href="https://www.regulations.gov">https://www.regulations.gov</a>. Any such comments or requests should be sent by
the end of the scheduled comment period. The application for exemption
and the comments received will be available for public inspection in
the Public Disclosure Room of the Employee Benefits Security
Administration, U.S. Department of Labor, Room N-1515, 200 Constitution
Avenue NW, Washington, DC 20210. See SUPPLEMENTARY INFORMATION below
for additional information regarding comments.
FOR FURTHER INFORMATION CONTACT: Mr. Frank Gonzalez and Ms. Blessed
Chuksorji-Keefe of the Department at (202) 693-8553 and (202) 693-8567,
respectively. (These are not toll-free numbers.).
SUPPLEMENTARY INFORMATION:
Comments: Persons are encouraged to submit all comments
electronically and not to follow with paper copies. Comments should
state the nature of the person's interest in the proposed exemption and
how the person would be adversely affected by the exemption, if
granted. Any person who may be adversely affected by an exemption can
request a hearing on the exemption. A request for a hearing must state:
(1) the name, address, telephone number, and email address of the
person making the request; (2) the nature of the person's interest in
the exemption, and the manner in which the person would be adversely
affected by the exemption; and (3) a statement of the issues to be
addressed and a general description of the evidence to be presented at
the hearing. The Department will grant a request for a hearing made in
accordance with the requirements above where a hearing is necessary to
fully explore material factual issues identified by the person
requesting the hearing. A notice of such hearing shall be published by
the Department in the Federal Register. The Department may decline to
hold a hearing if: (1) the request for the hearing does not meet the
requirements above; (2) the only issues identified for exploration at
the hearing are matters of law; or (3) the factual issues identified
can be fully explored through the submission of evidence in written
(including electronic) form.
Warning: All comments received will be included in the public
record without change and may be made available online at <a href="https://www.regulations.gov">https://www.regulations.gov</a>, including any personal information provided,
unless the comment includes information claimed to be confidential or
other information whose disclosure is restricted by statute. If you
submit a comment, EBSA recommends that you include your name and other
contact information in the body of your comment, but DO NOT submit
information that you consider to be confidential, or otherwise
protected (such as a Social Security number or an unlisted phone
number) or confidential business information that you do not want
publicly disclosed. However, if EBSA cannot read your comment due to
technical difficulties and cannot contact you for clarification, EBSA
might not be able to consider your comment. Additionally, the <a href="https://www.regulations.gov">https://www.regulations.gov</a> website is an ``anonymous access'' system, which
means EBSA will not know your identity or contact information unless
you provide it in the body of your comment. If you send an email
directly to EBSA without going through <a href="https://www.regulations.gov">https://www.regulations.gov</a>,
your email address will be automatically captured and included as part
of the comment that is placed in the public record and made available
on the internet.
Proposed Exemption
The Department of Labor (the Department) is considering granting an
exemption under the authority of Section 408(a) of the Employee
Retirement Income Security Act of 1974, as amended (ERISA), and Section
4975(c)(2) of the Internal Revenue Code of 1986, as amended (the Code),
and in accordance with the Department's exemption procedures
regulation,\1\ because it appears 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. If the Department grants a
final exemption, certain qualified professional asset managers within
the corporate family of Deutsche Bank AG (Deutsche Bank), including DWS
Investment Management Americas Inc. (DIMA or the Applicant), and
certain current and future affiliates of Deutsche Bank (each a DB
QPAM), will not be precluded from relying on the class exemptive relief
granted in Prohibited Transaction Exemption (PTE) 84-14 (PTE 84-14, or
the QPAM Exemption) \2\ notwithstanding the 2017 criminal conviction of
DB Group Services (UK) Limited (DB Group Services) for wire fraud in
connection with its role in manipulating the United States Dollar based
London Interbank Offered Rate (LIBOR), as described in more detail
below provided the conditions set forth in the exemption are met.
---------------------------------------------------------------------------
\1\ 29 CFR part 2570, subpart B (75 FR 66637, 66644, October 27,
2011). For purposes of this proposed exemption, reference to
specific provisions of Title I of ERISA, unless otherwise specified,
should be read to refer as well to the corresponding Code
provisions.
\2\ 49 FR 9494 (March 13, 1984), as corrected at 50 FR 41430
(October 10, 1985), as amended at 70 FR 49305 (August 23, 2005), and
as amended at 75 FR 38837 (July 6, 2010).
---------------------------------------------------------------------------
The exemption, if granted, would provide relief from certain
restrictions set forth in ERISA sections 406. It would not, however,
provide relief from any other violation of law, such as those laws
implicated in the conviction. Furthermore, the Department cautions that
the relief in the exemption would terminate immediately if, among other
things, an entity within the Deutsche Bank corporate structure is
convicted of a crime covered by Section I(g) of PTE 84-14 (other than
the U.S. Conviction, as defined in Section I(a) of this proposed
exemption) during the exemption period (as defined in Section I(c) of
this proposed exemption). Although the DB QPAMs could apply for a new
exemption in that circumstance, the Department would not be obligated
to grant the exemption.
The terms of this proposed exemption have been specifically
designed to permit plans to terminate their relationships in an orderly
and cost-effective fashion in the event of an additional conviction or
a determination that it is otherwise prudent for a plan to terminate
its relationship with an entity covered by the exemption.
Summary of Facts and Representations <SUP>3</SUP>
---------------------------------------------------------------------------
\3\ The Department notes that availability of this exemption
would be subject to the express condition that the material facts
and representations made by the Applicant in Application D-12090 are
true and complete and accurately describe all material terms of the
transaction(s) covered by the exemption. If there is any material
change in a transaction covered by the exemption, or in a material
fact or representation described in the application, the exemption
will cease to apply as of the date of the change.
---------------------------------------------------------------------------
Deutsche Bank
1. Deutsche Bank is a publicly held global banking and financial
services company headquartered in Frankfurt,
[[Page 13093]]
Germany. Deutsche Bank, with and through its affiliates, subsidiaries,
and branches, provides a range of services to various entities.
2. Deutsche Bank has several affiliated asset managers, including:
DIMA, a Delaware corporation; RREEF America L.L.C. (RREEF), a Delaware
limited liability company; DWS Alternatives Global Limited (Global), an
entity based in London, United Kingdom; and DWS Investments Australia
Limited (DIAL), an entity based in Sydney, Australia.\4\ These entities
(and future affiliated asset managers of Deutsche Bank) are
collectively referred to herein as the DB QPAMs. The DB QPAMs are
investment advisers (Advisers) registered under the Investment Advisers
Act of 1940, as amended, with the U.S. Securities and Exchange
Commission.
---------------------------------------------------------------------------
\4\ Deutsche Bank reorganized Deutsche Asset Management into a
separate financial services firm, DWS Group GmbH & Co. KGaA (DWS
Group). On March 23, 2018, DWS Group completed the sale of a
minority ownership interest and is now a separate, publicly listed
financial services firm, but remains majority-owned subsidiary of
Deutsche Bank. DIMA, and its investment advisory affiliates,
including RREEF, Global and Dial, became wholly owned subsidiaries
of DWS Group.
---------------------------------------------------------------------------
3. The DB QPAMs are part of the DWS Group (formerly Deutsche Asset
Management), a separate, publicly listed financial services firm that
is majority-owned by Deutsche Bank. According to DIMA, the DWS Group is
in a separate corporate ownership line than DB Group Services. Thus,
the convicted entity is in a different ownership line from the DB
QPAMs, i.e., DB Group Services is not an upstream or downstream
corporate affiliate of any DB QPAM. DWS Group is not itself a QPAM, but
instead is the parent entity that indirectly owns the DB QPAMs. The DWS
business has its own dedicated legal and compliance teams and the DB
QPAMs have their own boards of directors (in the case of RREEF, which
is a limited liability company, its own managers).
4. As Advisers, the DB QPAMs provide discretionary asset management
services to plans that are subject to Part 4, Title I of ERISA (ERISA-
covered plans) and Individual Retirement Accounts subject to Code
Section 4975 (IRAs). For purposes of this proposed exemption, the term
``Covered Plan'' means an ERISA Plan or an IRA, in each case, with
respect to which a DB QPAM relies on PTE 84-14, or with respect to
which a DB QPAM (or any Deutsche Bank 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 DB QPAM has expressly disclaimed reliance on QPAM status or
PTE 84-14 in entering into its contract, arrangement, or agreement with
the ERISA-covered plan or IRA.
5. Notwithstanding the above, a DB 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 DB QPAM will not represent that it
is a QPAM and will not rely on the relief described in PTE 84-14.
ERISA and Code Prohibited Transactions and PTE 84-14
6. The rules set forth in ERISA Section 406 and Code Section
4975(c)(1) proscribe certain ``prohibited transactions'' between plans
and certain parties in interest with respect to those plans.\5\ ERISA
Section 3(14) defines parties in interest with respect to a plan to
include, among others, the plan fiduciary, a sponsoring employer of the
plan, a union whose members are covered by the plan, service providers
with respect to the plan, and certain of their affiliates.\6\ The
prohibited transaction provisions under ERISA Section 406(a) prohibit,
in relevant part, (1) sales, leases, loans, or the provision of
services between a party in interest and a plan (or an entity whose
assets are deemed to constitute the assets of a plan), (2) the use of
plan assets by or for the benefit of a party in interest, or (3) a
transfer of plan assets to a party in interest.\7\
---------------------------------------------------------------------------
\5\ For purposes of the Summary of Facts and Representations,
references to specific provisions of Title I of ERISA, unless
otherwise specified, refer also to the corresponding provisions of
the Code.
\6\ Under the Code, such parties, or similar parties, are
referred to as ``disqualified persons.''
\7\ The prohibited transaction provisions also include certain
fiduciary prohibited transactions under ERISA Section 406(b). These
include transactions involving fiduciary self-dealing, fiduciary
conflicts of interest, and kickbacks to fiduciaries.
---------------------------------------------------------------------------
7. Under the authority of ERISA Section 408(a), the Department has
the authority to grant an exemption from such ``prohibited
transactions'' in accordance with the procedures set forth in the
exemption procedure regulation \8\ if the Department finds an exemption
is: (a) administratively feasible, (b) in the interests of the plan and
of its participants and beneficiaries, and (c) protective of the rights
of participants and beneficiaries.
---------------------------------------------------------------------------
\8\ 29 CFR part 2570, subpart B (76 FR 66637, 66644, October 27,
2011).
---------------------------------------------------------------------------
8. PTE 84-14 exempts certain prohibited transactions between a
party in interest and an ``investment fund'' (as defined in Section
VI(b) of PTE 84-14) in which a plan has an interest if the investment
manager satisfies the definition of ``qualified professional asset
manager'' (QPAM) and satisfies additional conditions of the exemption.
PTE 84-14 was developed and granted based on the essential premise that
broad relief could be afforded for all types of transactions in which a
plan engages only if the commitments and the investments of plan assets
and the negotiations leading thereto are the sole responsibility of an
independent, discretionary manager.\9\
---------------------------------------------------------------------------
\9\ See 75 FR 38837, 38839 (July 6, 2010).
---------------------------------------------------------------------------
9. Section I(g) of PTE 84-14 prevents an entity that may otherwise
meet the definition of QPAM from utilizing the exemptive relief
provided by the QPAM Exemption for itself and its client plans if that
entity, an ``affiliate'' thereof,\10\ or any direct or indirect five
percent or more owner in the QPAM has been either convicted or released
from imprisonment, whichever is later, because of criminal activity
described in section I(g) within the 10 years immediately preceding a
transaction. Section I(g) was included in PTE 84-14, in part, based on
the Department's expectation that QPAMs, and those who may be in a
position to influence the QPAM's policies, must maintain a high
standard of integrity.\11\
---------------------------------------------------------------------------
\10\ Section VI(d) of PTE 84-14 defines the term ``affiliate''
for purposes of Section I(g) as ``(1) Any person directly or
indirectly through one or more intermediaries, controlling,
controlled by, or under common control with the person, (2) Any
director of, relative of, or partner in, any such person, (3) Any
corporation, partnership, trust or unincorporated enterprise of
which such person is an officer, director, or a 5 percent or more
partner or owner, and (4) Any employee or officer of the person
who--(A) Is a highly compensated employee (as defined in Section
4975(e)(2)(H) of the Code) or officer (earning 10 percent or more of
the yearly wages of such person), or (B) Has direct or indirect
authority, responsibility or control regarding the custody,
management or disposition of plan assets.''
\11\ See 47 FR 56947 (December 21, 1982).
---------------------------------------------------------------------------
Prior Convictions and Related Exemptions
10. On October 11, 2011, DIMA requested an administrative exemption
from the Department (the First Request) to allow certain DB QPAMs to
continue utilizing the relief set forth in PTE 84-14 notwithstanding
the then impending criminal conviction of DSK, a Deutsche Bank
affiliate in South Korea under Korean law for spot/futures-linked
market price manipulation (the Korean Conviction). Specifically, on
January 25,
[[Page 13094]]
2016, the Seoul Central District Court (the Korean Court) convicted DSK
of violations of certain provisions of Articles 176, 443, and 448 of
the Korean Financial Investment Services and Capital Markets Act
(FSCMA) for spot/futures linked market manipulation in connection with
the unwinding of an arbitrage position that in turn caused a decline in
the Korean market. Upon the entering of the Korean Conviction, the
Korean Court sentenced DSK to pay a criminal fine of 1.5 billion South
Korean Won (KRW). Furthermore, the Korean Court ordered DB to forfeit
KRW 43,695,371,124, and DSK to forfeit KRW 1,183,362,400.\12\
---------------------------------------------------------------------------
\12\ The Korean Court determined that the forfeitures the
government collected from both DB and DSK represents the amount of
illegal profits that the entities received as result of the criminal
conduct.
---------------------------------------------------------------------------
11. While the Department considered the First Request, DIMA
submitted a second exemption application (the Second Request) to allow
certain DB QPAMs to continue relying on PTE 84-14 for a period of 10
years, notwithstanding both the Korean Conviction and the then-
anticipated conviction of DB Group Services (a Deutsche Bank indirect
wholly-owned subsidiary based in London, United Kingdom) under U.S. law
for one count of wire fraud in connection with its role in manipulating
the United States Dollar (US Dollar) based LIBOR (the U.S. Conviction).
Specifically, on April 23, 2015, the Fraud Section of the Criminal
Division and the Antitrust Division of the United States Department of
Justice filed a one-count criminal information in the U.S. District
Court for the District of Connecticut (the District Court) charging DB
Group Services with one count of wire fraud, in violation of Title 18,
United States Code, Section 1343. Pursuant to a plea agreement (the
Plea Agreement), DB Group Services entered a guilty plea in the
District Court relating to the conduct described therein (including the
conduct described in any of the exhibits thereto). On April 18, 2017,
the District Court entered a judgment against DB Group Services that
required remedies that are materially the same as those set forth in
the Plea Agreement.
12. On September 4, 2015, the Department published PTE 2015-15 in
connection with the First Request, which provided temporary exemptive
relief permitting DB QPAMs to continue relying on PTE 84-14 for a
period of nine months, notwithstanding the Korean Conviction.\13\ PTE
2015-15 had an effective date of January 25, 2016, which was the day on
which the Korean Court entered the Korean Conviction.
---------------------------------------------------------------------------
\13\ 80 FR 53574 (September 4, 2015).
---------------------------------------------------------------------------
13. On October 28, 2016, the Department granted PTE 2016-12, also
in connection with the First Request, which extended the relief
provided in PTE 2015-15.\14\ PTE 2016-12 had an effective date of
October 24, 2016, and was scheduled to end on the earlier of April 23,
2017, or the effective date of the Department's final action in
connection with the exemption request.
---------------------------------------------------------------------------
\14\ 81 FR 75153 (October 28, 2016).
---------------------------------------------------------------------------
14. On December 22, 2016, the Department published PTE 2016-13 in
connection with the Second Request, which granted temporary exemptive
relief permitting DB QPAMs to continue to rely on PTE 84-14 for a
period of nine months, notwithstanding the Korean Conviction and the
U.S. Conviction (collectively, the Convictions).\15\ PTE 2016-13 had an
effective date of April 18, 2017, and was set to expire after the
earlier of twelve months or the effective date of the Department's
grant of supplemental exemptive relief.
---------------------------------------------------------------------------
\15\ 81 FR 94028 (December 22, 2016).
---------------------------------------------------------------------------
15. On December 29, 2017, the Department granted PTE 2017-04, which
provided temporary exemptive relief, permitting the DB QPAMs to
continue to rely on PTE 84-14 for a period of three years beginning
April 18, 2018, and ending on April 17, 2021, notwithstanding the
Convictions.\16\ Thereafter, on February 18, 2018, the Department
issued certain technical corrections with respect to PTE 2017-04.
---------------------------------------------------------------------------
\16\ 82 FR 61840 (December 29, 2017).
---------------------------------------------------------------------------
16. On December 12, 2018, Korea's Seoul High Court for the 7th
Criminal Division (the Seoul High Court) reversed the Korean Court's
decision and declared the defendants not guilty; subsequently, Korean
prosecutors appealed the Seoul High Court's decision to the Supreme
Court of Korea.
17. On April 19, 2021, the Department granted PTE 2021-01, which
allowed the DB QPAMs to continue to rely on the relief provided in PTE
84-14, notwithstanding the U.S. Conviction for three years, beginning
on April 18, 2021.\17\ PTE 2021-01 extended the relief provided by PTE
2017-04 to April 17, 2024, but only with respect to the U.S.
Conviction.\18\
---------------------------------------------------------------------------
\17\ 86 FR 20410 (April 19, 2021).
\18\ Because of the Seoul High Court's decision reversing the
Korean Conviction, the Applicant did not request an extension of the
relief under PTE 2017-04 for the Korean Conviction.
---------------------------------------------------------------------------
18. On December 21, 2023, the Supreme Court of Korea affirmed the
reversal of the Korean Conviction, and it dismissed all judicial
proceedings against DSK. Accordingly, the exemptive relief related to
the Korean Conviction is not required.
The Deferred Prosecution Agreement
19. On January 8, 2021, Deutsche Bank entered into a deferred
prosecution agreement (DPA) with the U.S. Department of Justice in
which Deutsche Bank agreed to pay more than $130 million to resolve
criminal charges for violations of the Foreign Corrupt Practices Act
(FCPA) and a commodities fraud scheme. Although the DPA did not result
in ineligibility under Section I(g) of PTE 84-14, the Department
believes it is important that Deutsche Bank's Covered Plan clients are
aware of the DPA and Deutsche Bank's admissions of culpability. The
DPA's resolution included criminal penalties of $85,186,206, criminal
disgorgement of $681,480, victim compensation payments of $1,223,738,
and $43,329,622 to be paid to the U.S. Securities & Exchange
Commission. In the DPA, Deutsche Bank admitted, accepted, and
acknowledged that, among other things, it was responsible under United
States law for the acts of its officers, directors, employees, and
agents, as charged. The charges stem from a scheme to conceal corrupt
payments and bribes made to third-party intermediaries by making false
entries on Deutsche Bank's books and records and related internal
accounting control violations, and a separate scheme to engage in
fraudulent and manipulative commodities trading practices involving
publicly traded precious metals futures contracts. The FCPA misconduct
occurred between 2009 and 2016, and the Commodities fraud misconduct
occurred between 2009 and 2013.\19\
---------------------------------------------------------------------------
\19\ This exemption would require that, in connection with the
DPA entered on January 8, 2021, between Deutsche Bank and the U.S.
Department of Justice to resolve the U.S. government's investigation
into violations of the Foreign Corrupt Practices Act and a separate
investigation into a commodities fraud scheme, no DB QPAMs were
involved in the conduct that gave rise to the DPA, and no Covered
Plan assets were involved in the transactions that gave rise to the
DPA. Furthermore, the DB QPAMs are not permitted to employ or
knowingly engage any of the individuals that participated in the
conduct that is the subject of the DPA.
---------------------------------------------------------------------------
This Exemption Request <SUP>20</SUP>
---------------------------------------------------------------------------
\20\ Unless otherwise noted, PTEs 2015-15, 2016-12, 2016-13,
2017-04, and 2021-01, are also referred to herein as the ``Prior
Exemptions.''
---------------------------------------------------------------------------
20. On April 24, 2023, DIMA submitted an exemption application (the
New Request) seeking to extend the relief provided in PTE 2021-01,
which is set to expire on April 17, 2024. The New Request initially
sought relief for
[[Page 13095]]
both the U.S. Conviction and, if necessary, the Korean Conviction;
however, based on the Supreme Court of Korea's dismissal of all
judicial proceedings against DSK, such relief is no longer necessary.
Department's Note: The Department notes that the Applicant has
provided a description below of the specific costs or harms, if any,
that would occur to the DB QPAM's Covered Plan clients if the
Department denies this exemption request, including evidence that
quantifies in dollar amounts any valuable investment opportunities the
Covered Plan clients would have to forego and/or the basis for
concluding that certain investments could be subject to conditions or
limitations that could be disadvantageous or would no longer be
available to the Covered Plan clients on advantageous terms. Regardless
of whether this proposed exemption is granted, the Department strongly
emphasizes that a plan fiduciary's duties of prudence and loyalty apply
when hiring, monitoring, evaluating, and retaining an asset manager,
regardless of whether the asset manager retains the ability to continue
relying on PTE 84-14 under a supplemental individual exemption.\21\
---------------------------------------------------------------------------
\21\ A fiduciary's failure to abide by these duties may give
rise to personal liability on behalf of any such fiduciary.
---------------------------------------------------------------------------
21. Effective Period of the Proposed Exemption. Exemptive relief
would begin on April 18, 2024 (which is the first day following the
expiration of PTE 2021-01) and would end on April 17, 2027.
Applicant's Representations in Support of Its Request
22. DIMA states that while exemptions other than PTE 84-14 may
apply with respect to certain transactions, PTE 84-14 is particularly
important for securities and other instruments that may be traded on
behalf of Covered Plans, now or in the future, on a principal basis,
such as real estate investments (including purchases and sales, leases
and financings), corporate debt, municipal debt, other US fixed income
securities, Rule 144A securities, non-US fixed income securities, non-
US equity securities, US and non-US over-the-counter instruments (e.g.,
swaps, forwards, and options), structured products, and foreign
exchange. According to DIMA, PTE 84-14 is also important to Plans with
respect to the extensions of credit inherent in leveraged investments.
23. DIMA states that because counterparties are familiar and
comfortable with PTE 84-14 for a broad variety of transactions, PTE 84-
14 is generally the most commonly used prohibited transaction exemption
and is the exemption that counterparties generally rely on as the
backup exemption for all transactions. Counterparties may provide less
advantageous pricing or may not bid at all where the Covered Plan's
investment manager is not a QPAM.
24. DIMA represents that plan fiduciaries expend significant
resources, including time and money, in selecting asset managers for
their plans. Forcing Covered Plan clients to terminate their chosen
managers because the managers no longer have access to the broad
coverage and efficiencies of PTE 84-14 will cause such plans to incur a
number of additional costs. Additionally, Covered Plan clients will
incur direct transaction costs from liquidating and reinvesting their
portfolios, which costs and harms are discussed below.
25. DIMA states that the DB QPAMs have demonstrated a clean
compliance record that the DB QPAM's independent auditor, Fiduciary
Counselors Inc. (the Independent Auditor), confirmed after it examined
the DB QPAMs compliance programs and culture through the course of six
audits, as described below. According to DIMA, the DB QPAMs have
demonstrated a strong culture of compliance through:
a. Continued compliance with applicable ERISA regulatory
requirements, as reflected by the consistent results of six audits
performed by the Independent Auditor over more than six years;
b. Continued compliance with other applicable regulatory
requirements;
c. A thorough training module dedicated to ERISA, reviewed, and
approved by the Independent Auditor, mandatory for all in-scope
employees, at the outset of their employment and then on a periodic
basis;
d. Centralized, focused, and comprehensive ERISA policies and
procedures relating to ERISA and the Code, generally, as well as the
specific requirements of PTE 84-14, PTE 2017-04, and PTE 2021-01;
e. Effective internal compliance processes, including testing and
monitoring of DB QPAMs, with continuous improvement; and
f. No regulatory or judicial findings that a DB QPAM failed to meet
the requirements of ERISA during the entire period.
26. Independent Audits. The DB QPAMs have undergone six audits in
connection with PTE 2015-15, PTE 2016-12, PTE 2016-13, PTE 2017-04, and
PTE 2021-01, most recently for the period from April 18, 2022, through
April 17, 2023. During the course of these audits, the Independent
Auditor reviewed the following materials, systems, policies and
procedures:
<bullet> marketing materials directed to Covered Plans, the
identity of investment committee members and their affiliations,
minutes of investment committee meetings, information barriers,
policies and procedures, and emails involving the receipt of nonpublic
information;
<bullet> client complaints, client complaints policy and
procedures, errors policy and procedures, any errors and how such
errors are corrected, overdrafts policy and procedures, overdrafts,
affiliated broker and/or dealer reports, hardcoding process to avoid
trading violations in connection with affiliated broker and/or dealers
in trading system, cross trade reports, cross trade hardcoding process
in trading system, consent forms for PTE 77-4 and billing records to
show offset of fees, the trading system, guideline breach and ERISA
breach hardcoding process in the trading system, any guideline breaches
and the correspondence file associated with the breaches, the client
adoption process, performance metrics on ethics and integrity, personal
trading controls, personal trading policy and procedures, and the
personal trading system and any related incident reports;
<bullet> errors and complaints associated with Covered Plans,
errors policy and procedures, complaints policy and procedures, issues
relating to overdrafts, escalation procedures and requirements
including customer complaints policy and procedures, investment risk
oversight including reviews of counterparties, and investment
committees' meeting minutes;
<bullet> excise tax filings and associated incident reports, and
Form ADV and SEC Brochure Rules Policy--DWS, and Form ADV Part 2A
(Brochure);
<bullet> investment performance reports, PTE 77-4 disclosures, PTE
86-128 disclosures, incident reports, investments marketing materials,
and client complaints;
<bullet> compliance with PTE 84-14 conditions;
<bullet> compliance with PTE 2021-01 conditions (including the
written report prepared by the Compliance Officer in accordance with
PTE 2021-01); and
<bullet> proof of ERISA-related training, the content of training,
proof of ethics training, training of new hires, interviews of the
portfolio managers regarding the training system and the effectiveness
of training, the online training module, the training system and
process of assigning courses to employees, and the process for
[[Page 13096]]
employees completing assigned training.
27. During the course of the audits, the Independent Auditor
interviewed portfolio managers and held meetings with key management
and compliance officers, either in person or telephonically, including,
most recently, the Compliance Officer, Team Manager Client & Investment
Monitoring Investment Guideline Management, Senior Team Manager Client
& Investment Monitoring Investment Guideline/DWS Americas Control
Officer and Head Investment Guideline Management US, Assistant Vice
President--Anti-Bribery and Corruption, Gifts and Entertainment, Senior
Team Lead AFC & Anti-Fraud, Bribery & Corruption, Head of Anti-Fraud,
Bribery and Corruption (DWS): Vice-President--Lead Anti-Bribery &
Corruption, Director and Head of Employee Compliance for Americas,
Assistant Vice President, Birmingham Regulatory Team Manager: and Vice
President, Regulatory Training. The Independent Auditor was provided
demonstrations of key account maintenance, trading, and compliance
systems. Numerous documents, reports, policies and procedures and other
pertinent information were requested and timely received by the
Independent Auditor.
28. According to DIMA, the costs and harms to Covered Plans
resulting from the DB QPAMs' inability to rely on PTE 84-14 can best be
described by discussing the services for which the DB QPAMs rely on PTE
84-14. In this regard, the DB QPAMs provide discretionary asset
management services in reliance on PTE 84-14 to Covered Plans under two
DWS business lines: (1) Alternatives (including the Liquid Real Assets,
Direct Real Estate and Private Equity businesses) (hereinafter the
Alternatives) and (2) Active Institutional. Collectively, DB QPAMs
provide discretionary asset management services to ERISA-covered plans,
governmental plans and IRAs as follows: \22\
---------------------------------------------------------------------------
\22\ The Applicant states that all statistical data is as of
December 31, 2022, to the best of the Applicant's knowledge.
---------------------------------------------------------------------------
a. ERISA Accounts: Through 8 separately managed accounts and two
pooled funds subject to ERISA, to a total of 10 ERISA plan accounts,
with total assets under management (``AuM'') of approximately $619
million.
b. Governmental Plan Accounts: Through separately managed accounts,
to a total of 13 governmental plan accounts, with total AuM of
approximately $5.5 billion.
c. IRAs: After the first audit under PTE 2017-04, DIMA began to
offer discretionary model portfolios to financial sponsors with IRA
clients, but, in connection with DIMA's provision of such services,
DIMA has expressly disclaimed, and intends to continue to expressly
disclaim, its reliance on PTE 84-14.
29. The Applicant states that the following costs are in addition
to the opportunity costs of investing in cash pending reinvestment with
a new manager. The individual statistics for each of the foregoing
business lines are set forth below:
a. Alternatives: Alternatives provides discretionary asset
management services to, among others, 8 ERISA accounts and 10
governmental plan accounts. The largest ERISA account is $198 million.
Total ERISA AuM is $498 million. The largest governmental plan account
is $2.8 billion. Total governmental plan AuM is $4.9 billion.
Alternatives provides these services through separately managed
accounts and pooled funds subject to ERISA. Terminating Alternatives'
management may result in the following specific harm to the relevant
ERISA plan or governmental plan:
i. Loss of the investor's preferred manager: Virtually all plan
investors expend large amounts of time (6-8 months) and thousands of
dollars to find, evaluate, choose, and engage managers. Because of
Alternatives' unique position in real estate, infrastructure, and
commodities, replacing Alternatives would involve an even greater
effort. Further, due to the unique assets chosen by Alternatives under
its proprietary models, finding a true replacement is likely
impossible, thus necessitating modifications to portfolios, and likely,
to strategies and global investment policies, as well, with the
consequent costs of those additional ripple effect changes;
ii. Loss of leading investment manager/performance: DIMA represents
that Alternatives is a market leader, including when it comes to
performance, thus making it difficult for investors to find quality
replacements;
iii. Consulting fees: The consulting fees for searching for a new
private manager range from $30,000 to $40,000. Consultants may charge
twice as much or more for customized searches for private market
managers than they charge for public market manager searches;
iv. Additional time expended: 25-50 hours of client time to
evaluate alternative managers. Plans typically rely on several
individuals (whether through a board of trustees, investment committees
or otherwise) to evaluate and select managers. Further, unless a plan
has in-house investment professionals, it almost invariably relies on
outside consultants to assist with the search and evaluation (at a
substantial cost, as noted above);
v. Legal fees: The cost in legal fees to review/negotiate new
management agreement and guidelines ranges between $10,000 and $30,000.
Agreements for institutional asset management are almost invariably
negotiated. Further, agreements and guidelines for real estate
strategies, especially direct real estate, are generally more complex
than for other strategies;
vi. Transaction costs for direct real estate: For direct real
estate, 30-100 bps in direct transaction costs for early liquidation
(e.g., $8.4 million to $27.8 million loss for Alternatives' largest
governmental plan client);
vii. Early liquidation discounts: For direct real estate, 10-20%
discount for early liquidation (e.g., $278.4 million to $556.8 million
loss for Alternatives' largest governmental plan client);
viii. Transaction costs for non-direct real estate: For other
Alternatives' portfolios, 20-60 bps in direct transaction costs for
liquidation (e.g., $5.6 million to $16.7 million for Alternatives'
largest ERISA client);
b. Active Institutional: The Active Institutional team provides
institutional discretionary asset management services to a number of
separately managed plan accounts, including 2 ERISA plan accounts and 3
governmental plan accounts. The Active Institutional team also provides
discretionary model portfolio services to financial sponsors with IRA
clients. The largest ERISA account is $86.5 million. Total ERISA AuM is
$125.5 million. The largest governmental plan account is $518 million.
Total governmental plan AuM is $644.6 million. The Active Institutional
team currently manages these institutional accounts to a broad variety
of strategies, including: (I) equities, (II) fixed income, (III)
overlay, (IV) commodities, and (V) cash.
Department's Request for Comment Regarding ``Opportunity Costs'':
The Department specifically requests comments from Covered Plans, the
DB QPAMs, and the public as to the specific ``opportunity cost'' of
having assets ``invested in cash pending reinvestment with a new
manager.'' In this regard, the Department requests information
validating that there is no way to avoid investing assets in cash
during the transition to a new manager and information quantifying the
costs of having assets uninvested during such a
[[Page 13097]]
transition using objective assumptions. The Department notes that it
retains the ability to deny an exemption request if the record
associated with the request lacks adequate or sufficient supporting
data to enable the Department to make its findings that Covered Plans
would suffer harms if exemptive relief was not afforded the Applicants.
30. Given the institutional nature of the underlying accounts,
these strategies may involve a wide range of asset classes and types,
including: (1) US and foreign fixed income (Treasuries, Agencies,
corporate bonds, asset-backed securities, mortgage and commercial
mortgage-backed securities, deposits); (2) US and foreign mutual funds
and ETFs; (3) US and foreign futures, (4) currency; (5) swaps (interest
rate and credit default); (6) US and foreign equities; and (7) short
term investment funds.
31. According to the Applicant, terminating a plan's chosen manager
under any strategy involves various costs, including loss of the
investor's preferred manager, transaction costs, search costs and legal
costs, with the particular cost turning on the strategy and the assets
in which it invests. Estimated costs for the Active Institutional
strategy are as follows:
a. Consulting Fees: $30,000 to $40,000 in consulting fees for a new
manager search. Searches for private market managers are significantly
more expensive than for public market managers;
b. Additional Time Expended: 25-50 hours of client time to evaluate
alternative managers, assuming the task is handled by an institutional
board of trustees, plan committee or similar group of individuals;
c. Legal Fees: $10,000-$30,000 in legal fees to review/negotiate
new management agreement and guidelines, given that institutional
agreements are almost invariably negotiated;
d. Transaction Costs: Approximately 8.0 bps in direct transaction
costs for liquidation (e.g., $414,430.44 for Active Institution's
largest governmental plan client). This assumption is based on the
account's holdings as of December 31, 2022, and may change at any time,
given the flexible nature of institutional mandates;
e. Legal Costs for New Trading Agreements: The cost in legal fees
to negotiate each new futures, cleared derivatives, swaps, or other
trading agreement is between $15,000 and $30,000.
Department's Note: The Department specifically requests comments
from Covered Plans, the DB QPAMs, and the public as to the specific
costs or harms, if any, that would flow from denial of the exemption,
and data from the Applicant that identifies and quantifies in dollar
amounts any valuable investment opportunities that plans would have to
forego, and the basis for concluding that those investments would no
longer be available to Covered Plans on advantageous terms from the DB
QPAMs or other financial service providers. The Department retains the
ability to deny an exemption request if the record associated with the
request lacks adequate or sufficient supporting data. The Department
also requests comments from the public, Covered Plans, and the DB QPAMs
regarding the validity of these concerns, as well as any data or
analyses that quantify the magnitude of these associated costs and
harms in dollar amounts. The Department could decide to deny the
exemption request if the record associated with the request lacks
adequate or sufficient supporting data.
Applicant's Additional Request
32. The Applicant requests that the Department consider imposing an
audit requirement upon the DB QPAMs every other year for the remaining
years of exemption relief, basing such request on the following three
(3) reasons:
a. The U.S. Conviction occurred outside of the DB QPAMs, in an
entity that is entirely separate from the asset management business.
The DB QPAMs have been subjected to audits that, among other things,
confirmed that the Independent Auditor found no suggestion of any
inappropriate statements or discussions regarding transactions,
interactions, or undue influence from or to Deutsche Bank and the DB
QPAMs.
b. Since the Applicant's need for an exemption rests on a single
crime, the Applicant submits that similarly situated applicants should
be treated consistently and that its case is similar to other
applicants with one crime. The Applicant believes that the appropriate
and fair comparison is to the foreign exchange (``FX'') individual QPAM
exemptions granted to those applicants with only one conviction. These
applicants have, in their first five years of exemptive relief, three
one-year audits. Moreover, those applicants were advised at the time
that, if the audits revealed no deficiencies in their compliance
programs, the Department could exercise its discretion to alter the
exemption conditions in subsequent exemptions.
c. The compliance officer requirement, including full compliance
reviews, imposed by PTE 2021-01 is a reasonable substitute for a full
audit. Because the DB QPAMs have demonstrated a strong culture of
compliance and commitment to addressing the Department's articulated
concerns, the Applicant respectfully requests that the Department
exercise its discretion to modify the Independent Auditor requirement
for the years covered by the extension of the exemption.
33. The Applicant states that a biennial audit requirement also
would benefit plan participants because the audits are expensive and
monopolize significant amounts of time of the staff of the asset
managers' control functions. In the absence of these requirements, the
control functions would be able to set aside more time to develop and
implement new and appropriate controls, and perform additional testing,
surveillance, monitoring, and other compliance activities on a more
expedited and efficient basis.
34. Department's Response. The Department declines to modify the
timing of the DB QPAMs' audits to every other year. The Department
notes that although the DPA is not a disqualifying event under Section
I(g) of PTE 84-14, Deutsche Bank admitted to culpability for the crimes
described in the DPA. Given the amount of bad conduct reflected by the
record, the Department views an annual audit as necessary to ensure the
DB QPAMs remain untainted by the bad conduct of certain Deutsche Bank
affiliates.
35. The Applicant also requests the addition of a condition
addressing newly-acquired investment managers, as was included in the
exemption granted to JPMorgan Chase & Co. earlier in year 2023.\23\ The
Applicant is requesting that in respect to a newly-acquired manager
relying on PTE 84-14, the proposed exemption shall first apply after a
date that is six (6) months after the acquisition's closing date. The
Applicant explains that, from time to time, the Applicant acquires
asset managers that rely on the QPAM Exemption, as of the effective
date of the acquisition. According to the Applicant, when a manager is
in the process of being acquired, it is generally unwilling, or
practically unable, to communicate with its clients regarding all the
terms of the acquiror's individual QPAM exemption, e.g., in case the
transaction does not close. In addition, the associated information and
documentation may raise questions from plan clients that the manager
being acquired cannot answer, and it would be inappropriate to allow
the acquiror to
[[Page 13098]]
talk directly to the manager's clients prior to close.
---------------------------------------------------------------------------
\23\ See 88 FR 1418 (January 10, 2023).
---------------------------------------------------------------------------
36. In addition, PTE 2021-01 has many requirements, all of which
must be contained in policies and procedures of the newly-acquired
manager. The Applicant states that the acquired entity is typically
unable to change its policies and procedures until the transaction has
closed and only at that point does it try to meld new policies and
procedures related to the individual QPAM exemption to its policies.
37. DIMA states that the consequences for violating the exemption
are severe, and the acquired manager would understandably be reluctant
to accept these liabilities until it had trained its employees.
Further, the Applicant expects it would be quite challenging for the
independent auditor to insert an entirely new entity, with which it has
no familiarity, into its audit testing in real-time (to the extent it
even has the necessary resources to expand its audit and can confirm it
remains independent from the acquired manager).
38. According to DIMA, no time was allowed at the outset of the
Prior Exemptions for a newly-acquired manager to comply with the
exemptions' conditions. These conditions make it nearly impossible to
come into full compliance with the exemption before any such
acquisition closes, given all of the conditions regarding notices,
training, policies, compliance regimes, etc. If full compliance with
the exemption is not in place as of the closing date, such manager may
not be able to transact in reliance on PTE 84-14 on behalf of its plan
clients, even where it was doing so immediately prior to the closing
date. For plans managed by the acquired manager, transactions may have
to be terminated, strategies changed, and guidelines amended, causing
disruption to such plans through no fault of their own.
39. Department's Response. The Department agrees, in part, with the
Applicant's requested change. However, the Department believes any new
DB QPAM must be subject to an audit covering the entirety of the DB
QPAM's reliance on this exemption. The newly-acquired DB QPAM must
submit itself to the first audit that begins following the DB QPAM's
acquisition, but the period covered by such audit covers the period of
time beginning with the date of acquisition. The Department is adding a
condition in accordance with the Applicant's request that reads:
``With respect to an asset manager that becomes a DB QPAM after the
effective date of this exemption by virtue of being acquired (in whole
or in part) by DB or a subsidiary or affiliate of DB (a ``newly-
acquired DB QPAM''), the newly-acquired DB QPAM would not be precluded
from relying on the exemptive relief provided by PTE 84-14
notwithstanding the U.S. Conviction as of the closing date for the
acquisition; however, the operative terms of the exemption shall not
apply to the newly-acquired DB QPAM until a date that is six (6) months
after the closing date for the acquisition. To that end, the newly
acquired DB QPAM will initially submit to an audit pursuant to Section
III(i) of this exemption as of the first audit period that begins
following the closing date for the acquisition. The period covered by
the audit must begin on the date on which the DB QPAM was acquired.''
The Department explains that the first audit to which a newly-
acquired DB QPAM submits may cover a period greater than 1 year. For
example, assuming this proposed exemption is granted and the following:
DB QPAMs are subject to an annual audit covering April 18th 2024
through April 17th 2025 and a new DB QPAM is acquired on January 1,
2025: The newly-acquired DB QPAM would (1) be permitted to rely on the
relief provided by this exemption as of January 1, 2025 (the date of
its acquisition), (2) first become subject to the conditional terms of
the exemption on July 1, 2025, and (3) initially submit to the first
audit beginning post-acquisition (covering April 18, 2025-April 17,
2026). However, such audit of this particular DB QPAM must look back to
the date of acquisition and cover the period from January 1, 2025-April
17, 2026.
The Exemption's Protective Conditions
40. Several of this proposed exemption's conditions are designed to
ensure that the DB QPAMs were not involved in the conduct that gave
rise to the U.S. Conviction or the DPA. Accordingly, this proposal does
not provide prohibited transaction relief if the DB QPAMs knew of,
participated in, approved of, furthered, or profited from the conduct
that gave rise to the U.S. Conviction or the DPA.\24\ Nor is relief
available if a DB QPAM exercised any authority over plan assets in a
manner that it knew or should have known would further the criminal
conduct that is the subject of the U.S. Conviction or the 2021 DPA or
cause the DB QPAM or its affiliates to directly or indirectly profit
from the criminal conduct that is the subject of the U.S. Conviction or
the 2021 DPA.
---------------------------------------------------------------------------
\24\ For clarity, references to the DB QPAMs include their
officers, directors, agents other than Deutsche Bank, and employees
of such QPAMs.
---------------------------------------------------------------------------
41. Further, the DB QPAMs may not employ or knowingly engage any of
the individuals that participated in the conduct attributable to the
U.S. Conviction or the DPA. The DB QPAMs (including their officers,
directors, agents other than DB Group Services, and employees of these
QPAMs) must not have received direct compensation or knowingly received
indirect compensation in connection with the criminal conduct that is
the subject of the U.S. Conviction or the DPA.
42. The proposal further provides that no DB QPAM will use its
authority or influence to direct an ``investment fund'' that is subject
to ERISA or the Code and managed by such DB QPAM in reliance on PTE 84-
14, or with respect to which a DB QPAM has expressly represented to an
ERISA-covered plan or IRA with assets invested in such ``investment
fund'' that it qualifies as a QPAM or relies on PTE 84-14, to enter
into any transaction with DB Group Services 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.
43. If the Department grants this exemption, it will terminate
immediately if Deutsche Bank or any of its affiliates are convicted of
any additional crimes (other than the U.S. Conviction) described in
Section I(g) of PTE 84-14. Also, with limited exceptions, DB Group
Services may not 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.
44. The proposal requires each DB QPAM to update, implement and
follow certain written policies and procedures (the Policies). These
Policies are identical to the policies and procedures mandated by PTE
2021-01. In general terms, the Policies must require and be reasonably
designed to ensure among other things that: (i) the DB QPAMs' asset
management decisions are conducted independently of the corporate
management and business activities of DB Group Services; (ii) the DB
QPAMs fully comply with ERISA's fiduciary duties, as applicable, and
with ERISA and the Code's prohibited transaction provisions, as
applicable; (iii) the DB QPAMs do not knowingly participate in any
other person's violation of ERISA or the Code with respect to Covered
Plans; (iv) any filings
[[Page 13099]]
or statements made by the DB QPAMs to regulators on behalf of or in
relation to Covered Plans are materially accurate and complete; (v) the
DB QPAMs do not make material misrepresentations or omit material
information in communications with such regulators with respect to
Covered Plans; (vi) the DB QPAMs do not make material
misrepresentations or omit material information in communications with
Covered Plans; (vii) the DB QPAMs comply with the terms of the
exemption; and (viii) any violation of or failure to comply with any of
these items is corrected as soon as reasonably possible upon discovery,
or as soon after the DB QPAM reasonably should have known of the
noncompliance (whichever is earlier). Any violation or compliance
failure not so corrected must be reported in writing to appropriate
corporate officers, the head of compliance and the QPAM's general
counsel (or their functional equivalent), and the independent auditor
responsible for reviewing compliance with the Policies upon the
discovery of the failure to correct.
45. This proposal mandates training (Training) that is identical to
the training required under PTE 2021-01. In this regard, all relevant
DB QPAM asset/portfolio management, trading, legal, compliance, and
internal audit personnel must be trained during the Exemption Period.
Among other things, the Training must cover at a minimum, the Policies,
ERISA and Code compliance, ethical conduct, the consequences for not
complying with the exemption conditions (including any loss of the
exemptive relief provided herein) and the requirement for prompt
reporting of wrongdoing. The Training must be conducted by a
professional who has been prudently selected and has appropriate
technical training and proficiency with ERISA and the Code.
Department's Comment Regarding Training: The Department views the
Training obligation under this exemption as a key protection of Covered
Plans and expects that DB QPAMs and their personnel will complete their
training obligations fully and in good faith. To ensure the efficacy of
the Training, Section III(h)(2)(iii) requires that the Training ``[b]e
verified, through in-training knowledge checks, ``graduation'' tests,
and/or other technological tools designed to confirm that personnel
fully and in good faith participate in the Training.''
Furthermore, the Department expects the independent auditor
described in Section III(i)(1) of the exemption to validate the
efficacy of the Training, and, if necessary, to suggest additional
enhancements to the Applicant's Training program.
46. Under this proposal, as in PTE 2021-01, each DB QPAM must
submit to an annual audit conducted by an independent auditor. Among
other things, the auditor must test a sample of each DB QPAM's
transactions involving Covered Plans that are sufficient in size and
nature to afford the auditor a reasonable basis to determine such
QPAM's operational compliance with the Policies and Training. The
auditor's conclusions cannot be based solely on the Exemption Report
created by the Compliance Officer, described below, in lieu of
independent determinations and testing performed by the auditor.
47. The Audit Report must be certified by the respective DB QPAM's
general counsel or one of the three most senior executive officers of
the DB QPAM to which the Audit Report applies. A copy of the Audit
Report must be provided to the Audit Committee of Deutsche Bank's
Supervisory Board. A senior executive officer who has a direct
reporting line to Deutsche Bank's highest ranking legal compliance
officer must review the Audit Report for each DB QPAM and certify in
writing and under penalty of perjury that such officer has reviewed
each Audit Report. Deutsche Bank must notify the Department in the
event of a change in the committee to which the Audit Report will be
provided.
48. This proposal requires the DB QPAM to agree and warrant with
respect to any arrangement, agreement, or contract between a DB QPAM
and a Covered Plan that, throughout the Exemption Period the DB QPAM
will: (i) comply with ERISA and the Code, as applicable with respect to
the Covered Plan; (ii) refrain from engaging in prohibited transactions
that are not otherwise exempt (and to promptly correct any inadvertent
prohibited transactions); and (iii) comply with the standards of
prudence and loyalty set forth in ERISA Section 404 with respect to
each such ERISA-covered plan. Each DB QPAM must also agree and warrant
to indemnify and hold harmless the Covered Plan for any actual losses
resulting directly from any of the following: (a) a DB QPAM's violation
of ERISA's fiduciary duties and/or the prohibited transaction
provisions of ERISA and the Code as applicable; (b) a breach of
contract by the DB QPAM; or (c) any claim arising out of the failure of
the DB QPAM to qualify for the exemptive relief provided by PTE 84-14
as a result of a violation of Section I(g) of the exemption other than
the Conviction. This condition applies to actual losses caused by the
DB QPAM, including but not limited to losses and related costs arising
from unwinding transactions with third parties and from transitioning
Plan assets to an alternative asset manager as well as costs associated
with any exposure to excise taxes under Code Section 4975 because of a
DB QPAM's inability to rely upon the relief in the QPAM Exemption. The
definition of ``actual losses'' used in this proposed exemption allows
fiduciaries of Covered Plans to prudently manage and make the best
decisions on behalf of their plans without needing to consider the
costs caused by a DB QPAM's or its affiliate's misconduct, including
costs associated with unwinding transactions and transitioning plan
assets to a new asset manager, because these costs will be borne by the
DB QPAM and not the Covered Plan.\25\
---------------------------------------------------------------------------
\25\ The Department notes that with respect to the notice of
obligations requirement in Section III(j)(7), all Covered Plans must
receive a notice that includes the definition of actual losses as
provided in Section III(j)(2) of this proposed exemption. For
avoidance of doubt, Covered Plans must receive a new notice if the
notice Covered Plans previously received or the contractual language
previously agreed to in connection with Section I(j)(7) of PTE 2017-
04 or Section I(j)(7) of PTE 2021-01 did not include the definition
of actual losses that is provided in this exemption.
---------------------------------------------------------------------------
49. This proposed exemption contains specific notice requirements.
Each DB QPAM must provide a notice regarding the proposed exemption and
a separate summary describing the facts that led to each Conviction
(the Summary), which must be submitted to the Department, and a
prominently displayed statement (the Statement) that each Conviction
results in a failure to meet a condition in PTE 84-14, must be provided
to each sponsor and beneficial owner of a Covered Plan that entered
into a written asset or investment management agreement with a DB QPAM,
or the sponsor of an investment fund in any case where a DB QPAM acts
as a sub-adviser to the investment fund in which such ERISA-covered
plan and IRA invests. The notice, Summary, and Statement must be
provided before or contemporaneously with the client's receipt of a
written asset management agreement from the DB QPAM. If the Department
grants an exemption, the clients must receive a Federal Register copy
of the notice of final exemption within sixty (60) days of this
exemption's effective date. The notice may be delivered electronically
(including by an email containing a link to this exemption).
50. The proposal requires each DB QPAM to maintain records
necessary to demonstrate that the exemption
[[Page 13100]]
conditions have been met for six (6) years following the date of any
transaction for which the DB QPAM relies upon the relief provided in
the exemption. The proposal mandates that DB must continue to designate
a senior compliance officer (the Compliance Officer) who will be
responsible for compliance with the Policies and Training requirements
described herein. The Compliance Officer must conduct an exemption
review (the Exemption Review) to determine the adequacy and
effectiveness of the implementation of the Policies and Training. The
Compliance Officer must be a professional with extensive relevant
experience with a reporting line to the highest-ranking corporate
officer in charge of compliance for the applicable DB QPAM. At a
minimum, the Exemption Review must include review of the following
items: (i) any compliance matter related to the Policies or Training
that was identified by, or reported to, the Compliance Officer during
the previous year; (ii) any material change in the relevant business
activities of the DB QPAMs; and (iii) any change to ERISA, the Code, or
regulations that may be applicable to the activities of the DB QPAMs.
51. The Compliance Officer must prepare a written report (the
Exemption Report) that summarizes their material activities during the
Exemption Period and sets forth any instance of noncompliance
discovered during the Exemption Period and any related corrective
action. In each Exemption Report, the Compliance Officer must certify
in writing that to the best of their knowledge the report is accurate
and note whether the DB QPAMs have complied with the Policies and
Training, and/or corrected (or are correcting) any instances of
noncompliance.
52. The Exemption Report must be (i) provided to the appropriate
corporate officers of Deutsche Bank and each DB QPAM to which such
report relates and to the head of compliance and the general counsel
(or their functional equivalent) of the relevant DB QPAM, and (ii) made
unconditionally available to the independent auditor. The Exemption
Review, including the Compliance Officer's written Exemption Report,
must be completed within three (3) months following the end of the
period to which it relates.
53. Deutsche Bank must also immediately disclose to the Department
any deferred prosecution agreement (DPA) or non-prosecution agreement
(NPA) with the U.S. Department of Justice, entered into by DB 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 ERISA Section
411. Under this condition, the Applicant must also 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. The Department will review the
information provided and may seek additional information from the
Department of Justice, in order to determine whether the conduct
described in the DPA or NPA raises questions about the DB QPAMs'
ability to act with a high standard of integrity. The Department
retains the right to propose a withdrawal of the exemption pursuant to
its procedures contained at 29 CFR 2570.50, should the circumstances
warrant such action.
Department's Request for Comment: The Department requests comments
whether the Applicant should be required to provide information
regarding adverse regulatory actions (e.g., fines, censures, penalties,
civil lawsuits, settlements of civil or criminal lawsuits), that are
taken by other regulators against Deutsche Bank and its affiliates. For
example, should the Applicant be required to provide information
regarding actions taken by certain regulators (e.g., IRS, SEC, OCC, UK
FCA): Are there particular types of information or classes of
regulatory actions that are relevant to the Department's determination
whether the DB QPAMs should continue to be permitted to rely on PTE 84-
14 notwithstanding the U.S. Conviction?
54. The proposal mandates that, among other things, each DB QPAM
clearly and promptly informs Covered Plan clients of their right to
obtain a copy of the Policies or a description (the Summary Policies)
which accurately summarizes key components of the DB QPAM's written
Policies developed in connection with this exemption. If the Policies
are thereafter changed, each Covered Plan client must receive a new
disclosure within six (6) months following the end of the calendar year
during which the Policies were changed.\26\ With respect to this
requirement, the description may be continuously maintained on a
website, provided that such website's link to the Policies or Summary
Policies is clearly and prominently disclosed to each Covered Plan.
---------------------------------------------------------------------------
\26\ If the Applicant satisfies this disclosure requirement
through Summary Policies, changes to the Policies will not require
new disclosure to Covered Plans unless the Summary Policies are no
longer accurate because of the changes.
---------------------------------------------------------------------------
55. Finally, all the material facts and representations set forth
in the Summary of Facts and Representations must be true and accurate
at all times.
Clarifying Definition. In order to avoid confusion and clarify the
operation of certain conditions, the Department has included in this
proposed exemption a constructional definition of ``best knowledge'' to
clarify that any reference in this exemption to ``the best knowledge''
of a party will be deemed to mean the actual knowledge of the party and
the knowledge which they would have had if they had conducted a
diligent inquiry into the relevant subject matter. If a condition of
the exemption requires an individual to provide certification pursuant
to their ``best knowledge,'' then such individual, in order to make
such certification, must perform their reasonable due diligence
required under the circumstances to determine whether the information
such individual is certifying is complete and accurate in all respects.
Furthermore, with respect to an entity other than a natural person, the
``best knowledge'' of the entity includes matters that are known to the
directors and officers of the entity or should be known to such
individuals upon the exercise of such individuals' due diligence
required under the circumstances.
Statutory Findings
56. Based on the conditions included in this proposed exemption,
the Department has tentatively determined that the relief sought by the
Applicant would satisfy the statutory requirements for an exemption
under ERISA Section 408(a).
57. The Proposed Exemption is ``Administratively Feasible.'' The
Department has tentatively determined that the proposal is
administratively feasible since, among other things, a qualified
independent auditor will be required to perform in-depth audit(s)
covering, among other things, each DB QPAM's compliance with the
exemption, and a corresponding written audit report will be provided to
the Department and available to the public. The Department notes that
the independent audit will provide an incentive for, and a measure of,
compliance with the exemption conditions, while reducing the immediate
need for review and oversight by the Department.
58. The Proposed Exemption is ``In the Interest of the Covered
Plans.'' The Department has tentatively determined that the proposed
exemption is in the interests of the participants and beneficiaries of
each affected Covered Plan because of the likely costs the
[[Page 13101]]
plans would incur if the exemption were denied and the benefits of
permitting plans to continue to rely upon the DB QPAM's services with
the additional protections set forth in this exemption.
59. The Proposed Exemption is ``Protective of the Plan.'' The
Department has tentatively determined that this proposed exemption, if
granted, is protective of Covered Plans. The Department takes note of
the Applicant's representation that the DB QPAMs have consistently had
strong controls in place, which have only improved since the
predecessor exemptions were issued. Under this proposal, exemptive
relief would begin on April 18, 2024, and it has a limited prospective
term of three (3) years which coincides with the end of the
disqualification period in connection with the U.S. Conviction, April
17, 2027. Additionally, the proposed exemption has substantially the
same conditions set forth in PTE 2017-04 and PTE 2021-01, which covered
the U.S. Conviction.
Summary
60. This proposed exemption provides relief from certain
restrictions set forth in ERISA Sections 406. No relief or waiver of a
violation of any other law is provided by the exemption. The relief in
this proposed exemption would terminate immediately if, among other
things, an entity within the Deutsche Bank corporate structure is
convicted of any crime covered by PTE 84-14, Section I(g) (other than
the Convictions) during the effective period of the proposed exemption.
While such an entity could apply for a new exemption in that
circumstance, the Department is not obligated to propose or grant a
requested exemption, and no inferences should be drawn with respect to
the Department's future action due the Department's issuance of this
proposal.
61. When interpreting and implementing this exemption, the
Applicant and the DB QPAMs should resolve any ambiguities considering
the exemption's protective purposes. To the extent additional
clarification is necessary, these persons or entities should contact
EBSA's Office of Exemption Determinations at 202-693-8540.
62. Based on the conditions that are included in this proposed
exemption, the Department has tentatively determined that the relief
sought by the Applicant would satisfy the statutory requirements for an
individual exemption under ERISA Section 408(a) and Code Section
4975(c)(2).
Notice to Interested Persons
Notice of the proposed exemption will be provided to all interested
persons within fifteen (15) days of the publication of the notice of
proposed exemption in the Federal Register in the following manner. The
Applicant must provide notice of the proposed exemption as published in
the Federal Register, along with a separate summary describing the
facts that led to each Conviction (the Summary), which have been
submitted to the Department, and a prominently displayed statement (the
Statement) that each Conviction results in a failure to meet a
condition in PTE 84-14, to each sponsor and beneficial owner of a
Covered Plan, or the sponsor of an investment fund in any case where a
DB QPAM acts only as a sub-advisor to the investment fund in which such
ERISA-covered plan and IRA invests and a supplemental statement, as
required pursuant to 29 CFR 2570.43(a)(2). The supplemental statement
will inform interested persons of their right to comment on and to
request a hearing with respect to the pending exemption. All written
comments and/or requests for a hearing must be received by the
Department within forty-five (45) days of the date of publication of
this proposed exemption in the Federal Register. All comments will be
made available to the public.
Warning: If you submit a comment, EBSA recommends that you include
your name and other contact information in the body of your comment but
NOT submit information that you consider to be confidential, or
otherwise protected (such as Social Security number or an unlisted
phone number) or confidential business information that you do not want
publicly disclosed. All comments may be posted on the internet and can
be retrieved by most internet search engines.
General Information
The attention of interested persons is directed to the following:
(1) The fact that a transaction is the subject of an exemption
under 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 their
duties respecting the plan solely in the interest of the participants
and beneficiaries of the plan and in a prudent fashion in accordance
with ERISA Section 404(a)(1)(b); nor does it affect the requirement of
Code Section 401(a) that the plan must operate for the exclusive
benefit of the employees of the employer maintaining the plan and their
beneficiaries;
(2) Before an exemption may be granted under ERISA Section 408(a)
and/or Code Section 4975(c)(2), the Department must find that the
exemption is administratively feasible, in the interests of the plan
and of its participants and beneficiaries, and protective of the rights
of participants and beneficiaries of the plan;
(3) The proposed exemption, if granted, will be supplemental to,
and not in derogation of, any other provisions of ERISA and/or the
Code, including statutory or administrative exemptions and transitional
rules. Furthermore, the fact that a transaction is subject to an
administrative or statutory exemption is not dispositive of whether the
transaction is in fact a prohibited transaction; and
(4) The proposed exemption, if granted, will be subject to the
express condition that the material facts and representations contained
in each application are true and complete at all times, and that each
application accurately describes all material terms of the transaction
which is the subject of the exemption.
Proposed Exemption
The Department is considering granting an exemption under the
authority of ERISA Section 408(a) and Code Section 4975(c)(2) 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 Reorganization Plan No. 4 of 1978, 5 U.S.C. App. 1
(1996), transferred the authority of the Secretary of the Treasury to
issue exemptions of the type requested to the Secretary of Labor.
Therefore, this notice of proposed exemption is issued solely by the
Department.
Section I. Definitions
(a) The term ``Covered Plan'' means a plan subject to ERISA Title
I, Part 4 (an ERISA-covered plan) or a plan subject to Code Section
4975 (an IRA), in each case, with respect to which a DB QPAM relies on
PTE 84-14, or with respect to which a DB QPAM (or any Deutsche Bank
affiliate) has expressly represented that the manager qualifies as a
QPAM or relies on PTE 84-14 (the QPAM Exemption). A Covered Plan does
not include an ERISA-covered Plan or IRA
[[Page 13102]]
to the extent the DB QPAM has expressly disclaimed reliance on QPAM
status or PTE 84-14 in entering into its contract, arrangement, or
agreement with the ERISA-covered plan or IRA. Notwithstanding the
above, a DB 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 DB QPAM will not represent that it is a QPAM and will not
rely on the relief described in PTE 84-14.
(b) The term ``DB QPAM'' or ``DB QPAMs'' means DWS Investment
Management Americas, Inc. and any current and future Deutsche Bank
asset management affiliates that (i) qualify as a ``qualified
professional asset manager'' (as defined in PTE 84-14, Section VI(a)),
(ii) rely on the relief provided by PTE 84-14, and (iii) with respect
to which Deutsche Bank is an ``affiliate'' (as defined in PTE 84-14,
Section VI(d)(1)). The term ``DB QPAM'' excludes DB Group Services (UK)
Limited.
(c) The term ``Deutsche Bank'' or ``DB'' means Deutsche Bank AG, a
publicly held global banking and financial services company
headquartered in Frankfurt, Germany.
(d) The term ``Exemption Period'' means the period of time
beginning on April 18, 2024, and ending on April 17, 2027.
(e) The term ``U.S. Conviction'' means the judgment of conviction
against DB Group Services (UK) Limited (DB Group Services), a Deutsche
Bank ``affiliate'' (as defined in PTE 84-14, Section VI(d)), entered on
April 18, 2017, by the United States District Court for the District of
Connecticut, in case number 3:15-cr-00062-RNC, for one (1) count of
wire fraud, in violation of 18 U.S.C. 1343. For all purposes under this
exemption, ``conduct'' of any person or entity that is the ``subject of
the [U.S. Conviction]'' encompasses the factual allegations described
in Paragraph 13 of the Plea Agreement filed in the District Court in
Case Number 3:15-cr-00062-RNC.
(f) The term ``2021 DPA'' means the Deferred Prosecution Agreement
entered on January 8, 2021, between Deutsche Bank and the U.S.
Department of Justice to resolve the U.S. government's investigation
into violations of the Foreign Corrupt Practices Act and a separate
investigation into a commodities fraud scheme.
(g) Wherever found, any reference in this exemption to ``the best
knowledge'' of a party, ``best of [a party's] knowledge,'' and similar
formulations of the ``best knowledge'' standard, will be deemed to mean
the actual knowledge of the party and the knowledge which they would
have had if they had conducted their reasonable due diligence required
under the circumstances into the relevant subject matter. If a
condition of the exemption requires an individual to provide
certification pursuant to their ``best knowledge,'' then such
individual, in order to make such certification, must perform their
reasonable due diligence required under the circumstances to determine
whether the information such individual is certifying is complete and
accurate in all respects. Furthermore, with respect to an entity other
than a natural person, the ``best knowledge'' of the entity includes
matters that are known to the directors and officers of the entity or
should be known to such individuals upon the exercise of such
individuals' due diligence required under the circumstances.
Section II: Transactions
The DB QPAMs will not be precluded from relying on the exemptive
relief provided by Prohibited Transaction Exemption 84-14 (PTE 84-14)
\27\ notwithstanding the U.S. Conviction (as defined above in Sections
I(e)), during the Exemption Period, provided that the conditions in
Section III are satisfied.\28\
---------------------------------------------------------------------------
\27\ 49 FR 9494 (March 13, 1984), as corrected at 50 FR 41430,
(October 10, 1985), as amended at 70 FR 49305(August 23, 2005), and
as amended at 75 FR 38837 (July 6, 2010).
\28\ Section I(g) of PTE 84-14 generally provides relief only if
``[n]either the QPAM nor any affiliate thereof . . . nor any owner .
. . of a 5 percent or more interest in the QPAM is a person who
within the 10 years immediately preceding the transaction has been
either convicted or released from imprisonment, whichever is later,
as a result of'' certain felonies including fraud.
---------------------------------------------------------------------------
Section III. Conditions
(a) Other than a single individual who worked for a non-fiduciary
business within Deutsche Bank and who had no responsibility for, nor
exercised any authority in connection with, the management of plan
assets, the DB QPAMs (including their officers, directors, agents other
than DB Group Services, and employees of such QPAMs) did not know or
have reason to know of, and did not participate in the criminal conduct
of DB Group Services that is the subject of the U.S. Conviction or the
2021 DPA. Further, any other party engaged on behalf of the DB 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 U.S. Conviction or the 2021 DPA. For purposes of this exemption,
``participate in'' or ``participated in'' refers not only to active
participation in the criminal conduct that is the subject of the U.S.
Conviction or the 2021 DPA, but also applies to knowing approval of the
criminal conduct that is the subject of the U.S. Conviction or the 2021
DPA or knowledge of the conduct without taking active steps to prevent
the conduct, including reporting the conduct to the individual's
supervisors and the Board of Directors;
(b) Apart from a non-fiduciary line of business within Deutsche
Bank, the DB QPAMs (including their officers, directors, agents other
than DB Group Services, and employees of such QPAMs) did not receive
direct compensation, or knowingly receive indirect compensation, in
connection with the criminal conduct that is the subject of the U.S.
Conviction or the 2021 DPA. Further, any other party engaged on behalf
of the DB 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 that is the subject of the U.S. Conviction or
the 2021 DPA;
(c) The DB QPAMs do not currently and will not in the future employ
or knowingly engage any of the individuals that participated in the
criminal conduct that is the subject of the U.S. Conviction or the 2021
DPA;
(d) At all times during the Exemption Period, no DB 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 a DB QPAM in reliance of PTE 84-14, or with respect to which
to which a DB QPAM has expressly represented to a Covered Plan that it
qualifies as a QPAM or relies on the QPAM Exemption, to enter into any
transaction with DB Group Services, or to engage DB Group Services to
provide any service to such Covered Plan, for a direct or indirect fee
borne by such Covered Plan, regardless of whether such transaction or
service may otherwise be within the scope of relief provided by an
administrative or statutory exemption;
(e) Any failure of the DB QPAMs to satisfy PTE 84-14, Section I(g)
arose solely from the U.S. Conviction;
[[Page 13103]]
(f) A DB QPAM did not exercise authority over the assets of any
plan subject to Part 4 of Title I of ERISA (an ERISA-covered plan) or
section 4975 of the Code (an IRA) in a manner that it knew or should
have known would: Further the criminal conduct that is the subject of
the U.S. Conviction or the 2021 DPA; or cause the DB QPAM or its
affiliates to directly or indirectly profit from the criminal conduct
that is the subject of the U.S. Conviction or the 2021 DPA;
(g) Other than with respect to employee benefit plans maintained or
sponsored for its own employees or the employees of an affiliate, DB
Group Services will not act as a fiduciary within the meaning of ERISA
Sections 3(21)(A)(i) or (iii) or Code Sections 4975(e)(3)(A) and (C)
with respect to ERISA-covered plan and IRA assets; provided, however,
that DB Group Services will not be treated as violating the conditions
of this exemption solely because they acted as investment advice
fiduciaries within the meaning of ERISA Section 3(21)(A)(ii) or Code
Section 4975(e)(3)(B);
(h)(1) Each DB QPAM must continue to maintain, adjust (to the
extent necessary), implement, and follow written policies and
procedures (the Policies). The Policies must require and be reasonably
designed to ensure that:
(i) The asset management decisions of the DB QPAM are conducted
independently of the corporate management and business activities of DB
Group Services;
(ii) The DB QPAM fully complies with ERISA's fiduciary duties and
with ERISA's and the Code's prohibited transaction provisions, 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 DB 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 DB 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 the time;
(v) To the best of the DB QPAM's knowledge at the time, the DB QPAM
does not make material misrepresentations or omit material information
in its communications with such regulators with respect to Covered
Plans or make material misrepresentations or omit material information
in its communications with Covered Plans;
(vi) The DB QPAM complies with the terms of the exemption;
(vii) Any violation of or failure to comply with a requirement in
subparagraphs (h)(1)(ii) through (h)(1)(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, to the head of
compliance and the DB QPAM's general counsel (or their functional
equivalent) of the relevant DB QPAM that engaged in the violation or
failure, and the independent auditor responsible for reviewing
compliance with the Policies. A DB QPAM will not be treated as having
failed to develop, implement, maintain, or follow the Policies provided
that it corrects any instance of noncompliance as soon as reasonably
possible upon discovery or as soon as reasonably possible after the
QPAM reasonably should have known of the noncompliance (whichever is
earlier) and provided that it adheres to the reporting requirements set
forth in this subparagraph (vii);
(2) Each DB QPAM must maintain, adjust (to the extent necessary)
and implement a training program (the Training) that is conducted at
least annually for all relevant DB QPAM asset/portfolio management,
trading, legal, compliance, and internal audit personnel. The Training
must:
(i) At a minimum, cover the Policies, ERISA and Code compliance
(including applicable fiduciary duties and the prohibited transaction
provisions), ethical conduct, the consequences for not complying with
the conditions of this exemption (including any loss of exemptive
relief provided herein), and prompt reporting of wrongdoing;
(ii) Be conducted in-person, electronically or via a website 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 verified, through in-training knowledge checks,
``graduation'' tests, and/or other technological tools designed to
confirm that personnel fully and in good faith participate in the
Training;
(i)(1) Each DB QPAM must submit to an audit conducted annually by
an independent auditor who has been prudently selected and who has
appropriate technical training and proficiency with ERISA and the Code
to evaluate the adequacy of each DB QPAM's compliance with the Policies
and Training conditions described herein. The audit requirement must be
incorporated in the Policies, and the first audit must cover the period
that begins on the first day this exemption is effective, if granted.
Each audit must be completed no later than six (6) months after the
corresponding audit's ending period;
(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 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 DB QPAM and,
if applicable, Deutsche Bank, will grant the auditor unconditional
access to its business, including, but not limited to: its computer
systems; business records; transactional data; workplace locations;
training materials; and personnel. 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 DB QPAM has developed, implemented,
maintained, and followed the Policies in accordance with the conditions
of this exemption and has developed and implemented the Training, as
required herein;
(4) The auditor's engagement must specifically require the auditor
to test each DB QPAM's operational compliance with the Policies and
Training. In this regard, the auditor must test a sample of each QPAM's
transactions involving Covered Plans that is sufficient in size and
nature to afford the auditor a reasonable basis to determine such
QPAM's operational compliance with the Policies and Training;
(5) For each audit, the auditor must issue a written report (the
Audit Report) to Deutsche Bank, and the DB QPAM to which the audit
applies that describes the procedures performed by the auditor in
connection with its examination on or before the end of the relevant
period described in Section III(i)(1) for completing the audit. The
auditor, at its discretion, may issue a single consolidated Audit
Report that covers all of the DB QPAMs. The Audit Report must include
the auditor's specific determinations regarding:
(i) The adequacy of each DB QPAM's Policies and Training; each DB
QPAM's compliance with the Policies and Training; the need, if any, to
strengthen
[[Page 13104]]
such Policies and Training; and any instance of the respective DB
QPAM's noncompliance with the written Policies and Training described
in Section III(h) above. The DB QPAM must promptly address any
noncompliance and promptly address or prepare a written plan of action
to address any determination by the auditor regarding the adequacy of
the Policies and Training and the auditor's recommendations (if any)
with respect to strengthening the Policies and Training of the
respective QPAM. Any action taken or the plan of action to be taken by
the respective DB QPAM must be included in an addendum to the Audit
Report (and such addendum must be completed before 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 the Audit
Report is submitted, the following period's Audit Report must state
whether the plan was satisfactorily completed. Any determination by the
auditor that the respective DB 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 DB QPAM has complied with the
requirements under this subparagraph must be based on evidence that the
particular DB QPAM has actually implemented, maintained, and followed
the Policies and Training required by this exemption. Furthermore, the
auditor must not rely solely on the Annual Report created by the
compliance officer (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 most recent Annual Review described in
Section III(m);
(6) The auditor must notify the respective DB 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 each Audit Report, the DB QPAM's general
counsel, or one of the three most senior executive officers of the line
of business engaged in discretionary asset management services through
the DB QPAM with respect to which the Audit Report applies, must
certify in writing, under penalty of perjury, that such signatory has
reviewed the Audit Report and this exemption; and that, to the best of
such signatory's knowledge at the time, such DB QPAM has addressed,
corrected, or remedied any noncompliance and inadequacy or has an
appropriate written plan to address any inadequacy regarding the
Policies and Training identified in the Audit Report. Such
certification must also include the signatory's determination that, to
the best of such signatory'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 proposed exemption, and with the
applicable provisions of ERISA and the Code. Notwithstanding the above,
no person who knew of, or should have known of, or participated in, any
misconduct underlying the U.S. Conviction or the 2021 DPA, by any
party, may provide the certification required by this exemption, unless
the person took active documented steps to stop the misconduct
underlying the U.S. Conviction or the 2021 DPA;
(8) The Audit Committee of Deutsche Bank's Supervisory Board is
provided a copy of each Audit Report, and a senior executive officer
with a direct reporting line to the highest-ranking compliance officer
of Deutsche Bank must review the Audit Report for each DB QPAM and
certify in writing and under penalty of perjury that such officer has
reviewed each Audit Report. Deutsche Bank must provide notice to the
Department if there is a switch in the committee to which the Audit
Report will be provided. With respect to this subsection (8), such
certifying executive officer must not have known of, had reason to know
of, or participated in, any misconduct underlying the U.S. Conviction
(or the 2021 DPA), unless such person took active documented steps to
stop the misconduct underlying the U.S. Conviction (or the 2021 DPA);
(9) Each DB QPAM provides its certified Audit Report by electronic
mail to: <a href="/cdn-cgi/l/email-protection" class="__cf_email__" data-cfemail="c8ade5a7adac88aca7a4e6afa7be">[email protected]</a>. This delivery must take place no later than
thirty (30) days following completion of the Audit Report. The Audit
Report will be made part of the public record regarding this exemption.
Furthermore, each DB QPAM must make its Audit Report unconditionally
available, electronically or otherwise, for examination upon request by
any duly authorized employee or representative of the Department, other
relevant regulators, and any fiduciary of a Covered Plan;
(10) Each DB QPAM and the auditor must submit the following
document(s) to OED via electronic mail to <a href="/cdn-cgi/l/email-protection" class="__cf_email__" data-cfemail="73165e1c161733171c1f5d141c05">[email protected]</a>: Any engagement
agreement(s) entered into pursuant to the engagement of the auditor
under this exemption, no later than two (2) months after the execution
of any such engagement agreement;
(11) The auditor must provide the Department, upon request, for
inspection and review, access to all the workpapers created and
utilized in the course of the audit, provided such access and
inspection is otherwise permitted by law; and
(12) Deutsche Bank must notify the Department of a change in the
independent auditor no later than two (2) months after the engagement
of a substitute or subsequent auditor and must provide an explanation
for the substitution or change including a description of any material
disputes between the terminated auditor, and Deutsche Bank or any of
its affiliates;
(j) Throughout the Exemption Period, with respect to any
arrangement, agreement, or contract between a DB QPAM and a Covered
Plan, the DB QPAM agrees and warrants:
(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 in accordance with applicable rules under ERISA
and the Code); and to comply with the standards of prudence and loyalty
set forth in ERISA Section 404 with respect to each such Covered Plan
to the extent that section is applicable;
(2) To indemnify and hold harmless the Covered Plan for any actual
losses resulting directly from a DB QPAM's violation of ERISA's
fiduciary duties, as applicable, and of the prohibited transaction
provisions of ERISA and the Code, as applicable; a breach of contract
by the QPAM; or any claim arising out of the failure of such DB QPAM to
qualify for the exemptive relief provided by PTE 84-14 as a result of a
violation of Section I(g) of PTE 84-14 other than the Conviction. This
condition applies only to actual losses caused by the DB QPAM's
violations. Actual losses include, but are not limited to, losses and
related costs arising from unwinding transactions with third parties
and from transitioning Plan assets to an alternative asset manager as
well as costs associated with any exposure to excise taxes under Code
section 4975 as a result of a QPAM's inability to rely upon the relief
in the QPAM Exemption.
(3) Not to require or otherwise cause the Covered Plan to waive,
limit, or qualify the liability of the DB QPAM for violating ERISA or
the Code or engaging in prohibited transactions;
[[Page 13105]]
(4) Not to restrict the ability of such Covered Plan to terminate
or withdraw from its arrangement with the DB QPAM with respect to any
investment in a separately managed account or pooled fund subject to
ERISA and managed by such QPAM, with the exception of reasonable
restrictions, appropriately disclosed in advance, that are specifically
designed to ensure equitable treatment of all investors in a pooled
fund in the event such withdrawal or termination may have adverse
consequences for all other investors. In connection with any of these
arrangements involving investments in pooled funds subject to ERISA
entered into after the effective date of this exemption, the adverse
consequences must relate to a lack of liquidity of the underlying
assets, valuation issues, or regulatory reasons that prevent the fund
from promptly redeeming a Covered Plan's investment, and such
restrictions must be applicable to all investors in the pooled fund on
equal terms and effective no longer than reasonably necessary to avoid
the adverse consequences;
(5) Not to impose any fees, penalties, or charges for such
termination or withdrawal with the exception of reasonable fees,
appropriately disclosed in advance, that are specifically designed to
prevent generally recognized abusive investment practices or
specifically designed to ensure equitable treatment of all investors in
a pooled fund in the event such withdrawal or termination may have
adverse consequences for all other investors, provided that such fees
are applied consistently and in like manner to all such investors;
(6) Not to include exculpatory provisions disclaiming or otherwise
limiting liability of the DB QPAM 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 Deutsche Bank
and its affiliates, or damages arising from acts outside the control of
the DB QPAM; and
(7) Within 60 calendar days after this exemption's effective date,
each DB QPAM must provide a notice of its obligations under this
Section III(j) to each Covered Plan. For Covered Plans that enter into
a written asset or investment management agreement with a DB QPAM on or
after 60 calendar days from this exemption's effective date, the DB
QPAM must agree to its obligations under this Section III(j) in an
updated investment management agreement between the DB QPAM and such
clients or other written contractual agreement. This condition will be
deemed met for each Covered Plan that received a notice pursuant to PTE
2017-04 or PTE 2021-01 that meets the terms of this condition. This
condition will also be met where the DB QPAM has already agreed to the
same obligations required by this Section III(j) in an updated
investment management agreement between the DB QPAM and a Covered Plan.
Notwithstanding the above, a DB QPAM will not violate the condition
solely because a Covered Plan client refuses to sign an updated
investment management agreement;
(k) Within 60 days after the effective date of this exemption, each
DB QPAM provides notice of the exemption as published in the Federal
Register, along with a separate summary describing the facts that led
to the U.S. Conviction (the Summary), which have been submitted to the
Department, and a prominently displayed statement (the Statement) that
the U.S. Conviction results in a failure to meet a condition in PTE 84-
14, to each sponsor and beneficial owner of a Covered Plan, or the
sponsor of an investment fund in any case where a DB QPAM acts only as
a sub-advisor 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 DB QPAM
(including a participation or subscription agreement in a pooled fund
managed by a DB QPAM) after the date that is sixty days after the
effective date of this exemption must receive the proposed and final
exemptions with the Summary and the Statement prior to, or
contemporaneously with, the client's receipt of a written asset
management agreement from the DB QPAM (for avoidance of doubt, all
Covered Plan clients of a DB QPAM during the Exemption Period must
receive the disclosures described in this Section by the later of (i)
60 days after the effective date of the exemption or (ii) the date that
a Covered Plan client enters into a written asset or investment
management agreement with a DB QPAM). Disclosures required under this
paragraph (k) may be delivered electronically (including by an email
that has a link to this exemption. Notwithstanding the above paragraph,
a DB QPAM will not violate the condition solely because a Plan or IRA
refuses to sign an updated investment management agreement;
(l) The DB QPAMs must comply with each condition of PTE 84-14, as
amended, with the sole exception of the violation of PTE 84-14 Section
I(g) that is attributable to the U.S. Conviction. If, during the
Exemption Period, an affiliate of a DB QPAM (as defined in Section
VI(d) of PTE 84-14) is convicted of a crime described in Section I(g)
of PTE 84-14 (other than the U.S. Conviction), relief in this exemption
would terminate immediately;
(m)(1) Deutsche Bank continues to designate a senior compliance
officer (the Compliance Officer) who will be responsible for compliance
with the Policies and Training requirements described herein. The
Compliance Officer previously designated by the DB QPAM(s) under PTE
2021-01 may continue to serve in the role of Compliance Officer
provided they meet all the requirements of this Section.
Notwithstanding the above, no person who knew of, or should have known
of, or participated in, any misconduct underlying the U.S. Conviction
(or the 2021 DPA), 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 underlying the U.S.
Conviction (or the 2021 DPA). The Compliance Officer must conduct an
annual review for each twelve-month period, beginning on this
exemption's effective date, (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 asset
management;
(2) With respect to each Annual Review, the following conditions
must be met:
(i) The Annual Review includes a review of the DB 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 in connection with PTE 2017-04 or PTE 2021-01 or this exemption;
(B) any material change in the relevant business activities of the DB
QPAMs; and (C) any change to ERISA, the Code, or
[[Page 13106]]
regulations related to fiduciary duties and the prohibited transaction
provisions that may be applicable to the activities of the DB QPAMs;
(ii) The Compliance Officer prepares a written report for each
Annual Review (each, an Annual Report) that: (A) summarizes their
material activities during the preceding year; (B) sets forth any
instance of noncompliance discovered during the preceding year, and any
related corrective action; (C) details any change to the Policies or
Training to guard against any similar instance of noncompliance
occurring again; and (D) makes recommendations, as necessary, for
additional training, procedures, monitoring, or additional and/or
changed processes or systems, and management's actions on such
recommendations;
(iii) In each Annual Report, the Compliance Officer must certify in
writing that to the best of their 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 preceding year and any related correction
taken to date have been identified in the Annual Report; and (D) the DB
QPAMs have complied with the Policies and Training and/or corrected (or
is correcting) any known instances of noncompliance in accordance with
Section III(h) above;
(iv) Each Annual Report must be provided to: (A) the appropriate
corporate officers of Deutsche Bank and each DB QPAM to which such
report relates, and (B) the head of compliance and the DB QPAM's
general counsel (or their functional equivalent) of the relevant DB
QPAM; and must be made unconditionally available to the independent
auditor described in Section III(i) above;
(v) Each Annual Review, including the Compliance Officer's written
Annual Report, must be completed within three (3) months following the
end of the period to which it relates;
(n) Each DB 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 DB QPAM relies upon
the relief in the exemption;
(o) During the Exemption Period, Deutsche Bank: (1) immediately
discloses to the Department any Deferred Prosecution Agreement (a DPA)
or a Non-Prosecution Agreement (an NPA) with the U.S. Department of
Justice, entered into by Deutsche Bank any of its affiliates in
connection with conduct described in Section I(g) of PTE 84-14 and/or
ERISA section 411; and (2) immediately provides the Department any
information requested by the Department, as permitted by law, regarding
the agreement and/or conduct and allegations that led to such
agreement;
(p) Within 60 days after the effective date of this exemption, each
DB QPAM, in its agreements with, or in other written disclosures
provided to Covered Plans, clearly and prominently informs Covered Plan
clients of the Covered Plan's right to obtain a copy of the Policies or
a description (Summary Policies), which accurately summarizes key
components of the 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. 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. With respect to
this requirement, the description may be continuously maintained on a
website, provided that such website link to the Policies or the Summary
Policies is clearly and prominently disclosed to each Covered Plan;
(q) A DB QPAM will not fail to meet the terms of this exemption,
solely because a different DB QPAM fails to satisfy a condition for
relief described in Sections III(c), (d), (h), (i), (j), (k), (l), (n)
and (p) 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 Deutsche Bank or its
affiliates;
(r) Deutsche Bank imposes its internal procedures, controls, and
protocols to reduce the likelihood of any recurrence of conduct that is
the subject of the U.S. Conviction and the 2021 DPA;
(s) All the material facts and representations set forth in the
Summary of Facts and Representations are true and accurate;
(t) With respect to an asset manager that becomes a DB QPAM after
the effective date of the exemption by virtue of being acquired (in
whole or in part) by DB or a subsidiary or affiliate of DB (a ``newly-
acquired DB QPAM''), the newly-acquired DB QPAM would not be precluded
from relying on the exemptive relief provided by PTE 84-14
notwithstanding the U.S. Conviction as of the closing date for the
acquisition; however, the operative terms of the exemption shall not
apply to the newly-acquired DB QPAM until a date that is six (6) months
after the closing date for the acquisition. To that end, the newly
acquired DB QPAM will initially submit to an audit pursuant to Section
III(i) of this exemption as of the first audit period that begins
following the closing date for the acquisition. The period covered by
the audit must begin on the date on which the DB QPAM was acquired; and
(u) The DB QPAM(s) must provide the Department with the records
necessary to demonstrate that each condition of this exemption has been
met within 30 days of a request for the records by the Department.
Exemption Date: This exemption will be in effect beginning on April
18, 2024, and ending on April 17, 2027.
Signed at Washington, DC.
George Christopher Cosby,
Director, Office of Exemption Determinations, Employee Benefits
Security Administration, U.S. Department of Labor.
[FR Doc. 2024-03358 Filed 2-20-24; 8:45 am]
BILLING CODE 4510-29-P
</pre><script data-cfasync="false" src="/cdn-cgi/scripts/5c5dd728/cloudflare-static/email-decode.min.js"></script></body>
</html>Indexed from Federal Register on February 21, 2024.
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.