Notice2024-08337
Exemption From Certain Prohibited Transaction Restrictions Involving 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
April 18, 2024
Effective
April 18, 2024
Issuing agencies
Labor DepartmentEmployee Benefits Security Administration
Abstract
This document contains a notice of exemption issued by the Department of Labor (the Department) from certain of the prohibited transaction restrictions of the Employee Retirement Income Security Act of 1974 (ERISA or the Act) and/or the Internal Revenue Code of 1986 (the Code). This exemption extends for three years the exemptive relief provided by PTE 2021-01, which allows 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 exemptive relief provided by Prohibited Transaction Exemption (PTE) 84-14 (PTE 84-14 or the QPAM Exemption), notwithstanding the 2017 judgment of conviction against DB Group Services (UK) Limited (DB Group Services), as described below.
Full Text
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<title>Federal Register, Volume 89 Issue 76 (Thursday, April 18, 2024)</title>
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[Federal Register Volume 89, Number 76 (Thursday, April 18, 2024)]
[Notices]
[Pages 27789-27802]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2024-08337]
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DEPARTMENT OF LABOR
Employee Benefits Security Administration
[Prohibited Transaction Exemption 2024-02; Exemption Application No. D-
12090]
Exemption From Certain Prohibited Transaction Restrictions
Involving 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 exemption.
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SUMMARY: This document contains a notice of exemption issued by the
Department of Labor (the Department) from certain of the prohibited
transaction restrictions of the Employee Retirement Income Security Act
of 1974 (ERISA or the Act) and/or the Internal Revenue Code of 1986
(the Code). This exemption extends for three years the exemptive relief
provided by PTE 2021-01, which allows 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 exemptive
relief provided by Prohibited Transaction Exemption (PTE) 84-14 (PTE
84-14 or the QPAM Exemption), notwithstanding the 2017 judgment of
conviction against DB Group Services (UK) Limited (DB Group Services),
as described below.
DATES: The exemption will be in effect for a period of three years,
beginning on April 18, 2024, and ending on April 17, 2027.
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: The Applicant requested an individual
exemption pursuant to ERISA section 408(a) in accordance with the
Department's exemption procedures set forth in 29 CFR part 2570,
subpart B.\1\ On February 21, 2024, the Department published a notice
of proposed exemption in the Federal Register \2\ that would permit
certain qualified professional asset managers within the corporate
family of Deutsche Bank, including the Applicant, and certain current
and future DB QPAMs,\3\ to continue to rely on the exemptive relief
provided by the QPAM Exemption \4\ for a period of three years,
notwithstanding the judgment of conviction against Deutsche Bank's
affiliate DB Group Services under U.S. law for one count of wire fraud
in connection with its role in manipulating the United States Dollar-
based LIBOR (the U.S. Conviction).\5\ After considering the public
comments that the Department received in response to the notice of
proposed exemption, the Department is granting this exemption to
protect the interests of participants and beneficiaries of plans that
are subject to Part 4, Title I of ERISA (ERISA-covered plans) and
Individual Retirement Accounts subject to Code Section 4975 (IRAs)
(together, Covered Plans).\6\ This exemption provides only the relief
specified in the text of the exemption and does not provide relief from
violations of any law other than the prohibited transaction provisions
of Title I of ERISA and the Code expressly stated herein.
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\1\ 76 FR 66637, 66644, (October 27, 2011).
\2\ 89 FR 13091 (February 21, 2024).
\3\ This exemption defines ``DB QPAM'' or ``DB QPAMs'' to mean
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.
\4\ 49 FR 9494 (March 13, 1984), as corrected at 50 FR 41430
(October 10, 1985), as amended at 70 FR 49305 (August 23, 2005), and
as amended at 75 FR 38837 (July 6, 2010).
\5\ Section I(g) of PTE 84-14 generally provides that
``[n]either the QPAM nor any affiliate thereof . . . nor any owner .
. . of a 5 percent or more interest in the QPAM is a person who
within the 10 years immediately preceding the transaction has been
either convicted or released from imprisonment, whichever is later,
as a result of'' certain crimes.
\6\ 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. 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.
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Furthermore, the Department cautions that this individual exemption
only provides exemptive relief from Section I(g) of PTE 84-14 for the
DB QPAMs with respect to the U.S. Conviction. This exemption does not
affect the requirement for the DB QPAMs to adhere to all conditions of
PTE 84-14 as amended on April 3, 2024, effective June 17, 2024.\7\
Therefore, the DB QPAMs will become ineligible to rely on the QPAM
Exemption again based on a Criminal Conviction or Prohibited Misconduct
as specified in PTE 84-14, Section I(g)(1) subject to the Ineligibility
Date provision in Section I(h).\8\
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\7\ 89 FR 23090 (April 3, 2024).
\8\ See Section I(g)(1) of PTE 84-14, as amended at id.
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Based on the Applicant's adherence to all the conditions of PTE
2021-01 \9\ and this exemption, the Department makes the requisite
findings under ERISA section 408(a) that the exemption is: (1)
administratively feasible for the Department, (2) in the interest of
Covered Plans and their participants and beneficiaries, and (3)
protective of the rights of the participants and beneficiaries of
Covered Plans. Accordingly, affected parties should be aware that the
conditions incorporated in this exemption are necessary, individually
and taken as a whole, for the Department to grant the relief requested
by the Applicant. Absent these conditions, the Department would not
have granted this exemption.
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\9\ 86 FR 20410 (April 19, 2021).
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Background
1. Deutsche Bank is a publicly held global banking and financial
services company headquartered in Frankfurt, Germany.
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.\10\ 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
[[Page 27790]]
amended, with the U.S. Securities and Exchange Commission.
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\10\ 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 a majority-owned subsidiary of
Deutsche Bank. DIMA, and its investment advisory affiliates,
including RREEF, Global and Dial, became wholly owned subsidiaries
of DWS Group.
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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, the
convicted entity, 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 DB QPAMs have separate boards of directors (in the case of
RREEF, which is a limited liability company, its own managers) than DB
Group Services.
4. 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) and (2) Active Institutional.
Collectively, DB QPAMs provide discretionary asset management services
to ERISA-covered plans, governmental plans and IRAs as follows: \11\
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\11\ The Applicant states that all statistical data is as of
December 31, 2022, to the best of the Applicant's knowledge.
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a. ERISA Accounts: The DB QPAMs provide discretionary asset
management services to a total of 10 ERISA-covered plan accounts
through eight separately managed accounts and two pooled funds subject
to ERISA, with total assets under management (``AUM'') of approximately
$619 million.
b. Governmental Plan Accounts: The DB QPAMs additionally provide
discretionary asset management services to a total of 13 governmental
plan accounts through separately managed accounts with total AUM of
approximately $5.5 billion.
c. IRAs: 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.\12\
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\12\ For purposes of this exemption, the term ``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. Notwithstanding, 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.
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ERISA and Code Prohibited Transactions and PTE 84-14
5. 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.\13\ 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.\14\ 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.\15\
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\13\ For purposes of this section, references to specific
provisions of Title I of ERISA, unless otherwise specified, refer
also to the corresponding provisions of the Code.
\14\ Under the Code, such parties, or similar parties, are
referred to as ``disqualified persons.''
\15\ 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.
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6. 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 \16\ 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.
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\16\ 29 CFR part 2570, subpart B (76 FR 66637, 66644, October
27, 2011).
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7. 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 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.\17\
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\17\ See 75 FR 38837, 38839 (July 6, 2010).
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8. 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,\18\ 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.\19\
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\18\ 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.''
\19\ See 47 FR 56947 (December 21, 1982).
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LIBOR Conviction and PTE 84-14 Disqualification
9. 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, a Deutsche Bank indirect wholly-owned subsidiary based in
London, United Kingdom, with one count of wire fraud in violation of
Title 18, United States Code, Section 1343 for its role in manipulating
the United States Dollar based LIBOR. 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), and 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. The Conviction, effective on April 18, 2017,
would have triggered DIMA's disqualification under Section I(g) of PTE
84-14 without the exemption described in more detail below.
[[Page 27791]]
The Deferred Prosecution Agreement
10. 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 $87 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 at that time, 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. In addition to the $87,091,424 paid to the U.S.
Department of Justice, Deutsche Bank also paid $43,329,622 to settle
related charges brought by the U.S. Securities & Exchange Commission.
11. 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.\20\
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\20\ This exemption would require that, in connection with the
DPA, 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.
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The Korean Conviction and DIMA's Prior Exemption Requests
12. 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 a Deutsche Bank affiliate in
South Korea (DSK), under Korean law for spot/futures-linked market
price manipulation (the Korean Conviction). Specifically, on January
25, 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 Deutsche Bank
AG to forfeit KRW 43,695,371,124, and DSK to forfeit KRW
1,183,362,400.\21\ 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 LIBOR Conviction.
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\21\ 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.
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13. In response to DIMA's First and Second Requests, the Department
granted several temporary short-term exemptions to provide sufficient
time for the Department to (a) analyze the facts underlying each of the
criminal convictions to determine whether Covered Plans would be
harmed; and (b) determine whether long-term relief was appropriate. In
this regard, the Department proposed and granted PTEs 2015-15,\22\
2016-12,\23\ and 2016-13,\24\ which cumulatively provided exemptive
relief for DB QPAMs to rely on the relief provided in PTE 84-14,
notwithstanding the Korean Conviction and the U.S. Conviction, until
April 17, 2018. Thereafter, the Department granted PTE 2017-04,\25\
which extended the relief provided by PTE 2016-13 for an additional 3
years, until April 17, 2021.
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\22\ 80 FR 53574 (September 4, 2015).
\23\ 81 FR 75153 (October 28, 2016).
\24\ 81 FR 94028 (December 22, 2016).
\25\ 82 FR 61840 (December 29, 2017), technical correction at 83
FR 7227 (February 20, 2018).
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14. 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, obviating the need for
exemptive relief related to the Korean Conviction.\26\ Thereafter, 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 more years, until April
17, 2024.\27\
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\26\ On December 21, 2023, the Supreme Court of Korea affirmed
the reversal of the Korean Conviction, and dismissed all judicial
proceedings against DSK.
\27\ 86 FR 20410 (April 19, 2021). 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.
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15. The three-year effective periods provided by PTE 2017-04 and
PTE 2021-01 were justified by the magnitude, gravity, duration, and
pervasiveness of the misconduct relating to the criminal prosecutions
by U.S. and foreign authorities. Importantly, the shorter terms of
exemptive relief enabled the Department to review the DB QPAMs'
compliance efforts periodically to ascertain whether any adjustments to
the exemption's conditions were necessary for the Department to make a
finding that continuation of exemptive relief to the DB QPAMs remained
in the interest of, and protective of the rights of, Covered Plans.
DB QPAMs' Compliance With Prior Exemptions' Conditions <SUP>28</SUP>
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\28\ Unless otherwise noted, PTEs 2015-15, 2016-12, 2016-13,
2017-04, and 2021-01, are also referred to herein as the ``Prior
Exemptions.''
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16. The Department included a set of conditions in PTE 2021-01 that
are designed to protect Covered Plans that entrust their assets for
investment by the DB QPAMs despite the serious nature of the criminal
misconduct underlying the U.S. Conviction. DIMA states that 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. 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
[[Page 27792]]
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. Not being subject to any regulatory or judicial findings that a
DB QPAM failed to meet the requirements of ERISA during the entire six-
year period.
17. Independent Audits. The DB QPAMs have undergone six audits in
connection with the Prior Exemptions, most recently for the period from
April 18, 2022, through April 17, 2023. The Department thoroughly
reviewed the audits as part of its determination to propose individual
exemptive relief. In its latest audit, the Independent Auditor
determined that ``the DB QPAMs have developed, implemented, maintained
and followed the requisite policies and procedures required in
connection with [PTE 2017-04]. Additionally . . . the DB QPAMs have
developed and implemented the requisite training in connection with
these policies and procedures required in connection with the [PTE
2017-04].'' \29\
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\29\ The notice of proposed exemption provides a more detailed
description of the audits conducted by the Independent Auditor,
including the materials, systems, procedures, and records that the
Independent Auditor reviewed in order to make conclusions about the
DB QPAMs compliance with the conditions for relief. The most recent
audit is also available for inspection by the public and is included
in its entirety as part of the public record for this exemption
under Application No. D-12090.
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Hardship to Covered Plans
18. In its application for exemptive relief, and as further
described in the notice of proposed exemption, DIMA represented 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.
19. DIMA represented 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
that counterparties generally rely on as the backup exemption for all
transactions. According to DIMA, counterparties may provide less
advantageous pricing or may not bid at all where the Covered Plan's
investment manager is not a QPAM.
20. DIMA represented that plan fiduciaries expend significant
resources, including time and money, in selecting asset managers for
their plans. DIMA stated that 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, according to DIMA,
Covered Plan clients will incur direct transaction costs from
liquidating and reinvesting their portfolios, which costs and harms are
discussed below.
21. 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 following services for which the DB QPAMs
rely on PTE 84-14. DIMA provided the following statements in support of
its application:
a. Alternatives: As noted above, 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 Alternatives) and (2) Active Institutional. Alternatives
provides discretionary asset management services to, among others,
eight ERISA-covered accounts and ten 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, and 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. Approximately six to eight months and thousands of dollars to
find, evaluate, choose, and engage a new manager;
ii. Consulting fees to search for a new private manager of
approximately $30,000 to $40,000;
iii. Approximately 25-50 hours of additional client time to
evaluate alternative new managers;
iv. Legal fees to review/negotiate new management agreement and
guidelines of approximately $10,000 to $30,000;
v. Transaction costs for direct real estate of between 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);
vi. Early liquidation discounts for direct real estate of between
10-20% (e.g., $278.4 million to $556.8 million loss for Alternatives'
largest governmental plan client);
vii. Transaction costs for non-direct real estate in other
portfolios of between 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 two ERISA plan accounts and
three governmental plan accounts. The Active Institutional team also
provides discretionary model portfolio services to financial sponsors
with IRA clients. Total ERISA AUM is $125.5 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.
22. According to DIMA, 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.
23. 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 of between $30,000 to $40,000 for a new manager
search;
b. Approximately 25-50 hours of additional client time to evaluate
new managers, assuming the task is handled by an institutional board of
trustees, plan committee or similar group of individuals;
c. Legal Fees of approximately $10,000 to $30,000 to review/
negotiate new management agreement and
[[Page 27793]]
guidelines, given that institutional agreements are almost invariably
negotiated;
d. Transaction Costs of approximately 8.0 bps for liquidations
(e.g., $414,430.44 for Active Institution's largest governmental plan
client)--based on the account's holdings as of December 31, 2022;
e. Legal Costs to negotiate each new futures, cleared derivatives,
swaps, or other trading agreement of between approximately $15,000 and
$30,000.
24. The Department notes that this exemption includes protective
conditions that allow Covered Plans to continue to utilize the services
of DB QPAMs if the Covered Plans determine that it is prudent to do so.
In this regard, this exemption allows Covered Plans to avoid cost and
disruption to investment strategies that may arise if such Covered
Plans are forced, on short notice, to hire a different QPAM or asset
manager because DB QPAMs are no longer able to rely on the relief
provided by PTE 84-14 due to the U.S. Conviction.
Comments Received Regarding the Proposed Exemption
Written Comments
25. In the notice of proposed exemption, the Department invited all
interested persons to submit written comments and/or requests for a
public hearing with respect to such notice, which were due by February
8, 2024. Additionally, the Department requested 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 specifically requested
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 requested 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 transition using objective assumptions. Lastly, the
Department requested 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.
26. The Department received three written comments: one from an
anonymous submitter; one from an individual financial consultant
(Consultant); and one from the Applicant. The Department did not
receive a request for a public hearing pertaining to the notice of
proposed exemption. The comments are as follows:
Anonymous Comment: The anonymous commenter opined that the
Applicant should not receive an exemption because of Deutsche Bank's
unethical practices with a former US president's company. The anonymous
commenter did not provide supporting information for the Department to
consider.
Consultant's Comment: The Consultant shared their concern that the
exemption may: (1) create conflicts of interest by allowing DWS to
engage in certain transactions with affiliates that may create
conflicts of interest that could harm Covered Plans' participants; (2)
undermine fiduciary obligations potentially leading to breaches of
fiduciary duty by plan fiduciaries; and (3) expose plans to additional
risk if affiliates engage in risky investment strategies or
transactions. The Consultant urged the Department to conduct thorough
reviews of DWS' conflicts of interest policies and procedures, impose
robust conditions to prevent fiduciary breaches, and require regular
reporting and monitoring to ensure compliance with the exemption.
Department's Response: The Department believes that its extensive
review of the record developed in connection with the Applicant's
exemption request, including the Department's extensive review of the
audits submitted by the Applicant pursuant to prior exemptions, and the
protective conditions that the DB QPAMs must adhere to, address the
Consultant's concerns described above. Section III(h)(1) of the
exemption, which is a mainstay of exemptions providing relief from
Section I(g) of PTE 84-14, generally requires the DB QPAMs to maintain,
adjust, implement, and follow written policies and procedures designed
to avoid conflicts of interest in asset management decisions; comply
with ERISA's fiduciary duties; avoid engaging in prohibited
transactions under ERISA and the Code; and avoid participating in any
other person's violation of ERISA or the Code with respect to Covered
Plans. The exemption requires an annual audit performed by an
independent auditor, and the auditor must determine whether each DB
QPAM has developed, implemented, maintained, and followed the Policies
in accordance with the conditions of this exemption. The results of
each audit are reduced to a written audit report that is delivered to,
and reviewed by, the Department to ensure that the audit and the
auditor's determinations are consistent with the requirements of the
exemption. The Department reviewed and considered each audit received
by the Applicant prior to determining whether to grant this exemption.
The exemption is also subject to the DB QPAMs' adherence to Section
III(j), which requires the QPAMs to indemnify and hold harmless their
Covered Plan clients for any actual losses resulting directly from a DB
QPAM's violation of ERISA's fiduciary duties, the prohibited
transaction provisions of ERISA and the Code, and a breach of contract;
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. The Department
included the protections of Section III(j) in order to ensure that
Covered Plans were adequately protected in the event the DB QPAMs
violated applicable laws or their contractual obligations to their
clients. Section III(j) also makes it easier for Covered Plan clients
to change managers if Covered Plan fiduciaries determine it is prudent
to do so, given Deutsche Bank's long history of corporate malfeasance.
Finally, the exemption requires additional reporting and notice
obligations designed to create a culture of compliance and
transparency. Section III(m) requires Deutsche Bank to designate a
compliance officer responsible for ensuring compliance with the
policies and procedures and training requirements of the exemption, and
for performing an annual review to determine the effectiveness of the
policies and procedures and training. The compliance officer is
required to produce an annual report setting forth, among other things,
instances of noncompliance and the correcting action taken to address
them. The exemption also requires the DB QPAMs to provide notice of the
exemption and the conduct leading to disqualification under Section
I(g) to all Covered Plans, and to maintain the records required in
order to prove the QPAMs' compliance with the conditions for relief.
The independent auditor's reports, the compliance officer's annual
reports, and
[[Page 27794]]
the records required to be maintained by QPAMs, are a part of the
public record available to interested persons by contacting the Public
Disclosure Room of the Employee Benefits Security Administration.
Applicant's Comment: The Applicant submitted several comments, as
well as responses to requests the Department made in the proposed
exemption, for additional information.
Applicant's Response Regarding Costs to Covered Plans. In response
to the Department's request for additional information regarding
potential costs and harm to Covered Plan clients from denial of the
exemption, the Applicant submitted reports from NERA Economic
Consulting (the NERA Report) and Mr. Lawrence Davanzo, an independent
pension consultant (Davanzo Statement), respectively. These reports
were also previously submitted by the Applicant in connection with PTE
2021-01.\30\ According to the Applicant, the reports are still valid,
as there have not been any material changes in how managers are
selected, retained, and terminated by plan investors and the associated
costs with such decisions.\31\
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\30\ 86 FR 9376 (February 12, 2021).
\31\ The reports from NERA Economic Consulting and Mr. Lawrence
Davanzo are available in their entirety as part of the public record
for this exemption and may be requested from the Office of Public
Disclosure.
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The NERA Report lists various adverse impacts of the costs and
harms associated with the denial of the exemption, with estimates
ranging as high as 20.68 percent for certain investments. The NERA
Report concludes that it could not identify any benefits to Covered
Plans from the denial of the exemption that would outweigh the costs
associated with such denial. The Davanzo Statement provides a list of
the direct and indirect costs that may be incurred when an investment
manager's portfolio is transitioned to another replacement manager, and
the less liquid the asset class involved in the termination, the higher
the costs, which will directly impact Covered Plans' participants. The
Davanzo Statement distinguishes between a criminal conviction of the
asset manager and that of its affiliated entity, noting that the
majority of asset management subsidiaries of financial institutions
operate with significant autonomy from the parent company, and such
asset management subsidiaries, which frequently have separate risk and
control functions, are structured among other things to demonstrate
their independence from their parent companies. Lastly, the Davanzo
Statement concludes that Covered Plans (and their beneficiaries) would
incur significant costs associated with the investment manager's
termination despite that it was an affiliate's illegal actions and not
the manager's conduct that caused the denial of the QPAM Exemption.
Applicant's Response Regarding ``Opportunity Cost.'' In its request
for an exemption, the Applicant had represented that an investment
fund's investing in cash pending a client plan's reinvestment of those
assets with a new manager is an ``opportunity cost'' to the client
plan. In the proposed exemption, the Department requested additional
information regarding these ``opportunity costs.''
In its comment, the Applicant states that the exemption
application's mention of the opportunity costs of investing in cash
pending reinvestment with a new manager was merely intended to
differentiate such costs from costs such as consulting fees, legal
fees, liquidation costs, and similar transaction costs. The NERA Report
expounds on opportunity costs generally, explaining that opportunity
costs due to a change in investment managers refer to the loss of value
that could have been gained during the transition between managers,
such as potential return lost due to not being fully invested in
desired asset classes, which the NERA Report estimates to be up to 3.75
percent.
Department's Note: The Department stresses that each DB QPAM has
the fiduciary duty to manage the assets of each Covered Plan prudently,
at all times, and in such plan's best interests, including when the
Covered Plan is transitioning assets to a new manager.
Applicant's Response Regarding Disclosures of Adverse Actions. In
the proposed exemption, the Department requested 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.
The Applicant states that the granting of the exemption should not
depend upon regulatory actions, other than the conviction that
necessitated the request for relief. According to the Applicant, doing
so is an unwarranted expansion of the QPAM Exemption as currently
existing, as well as inconsistent with the Department's stated
objectives in creating the QPAM Exemption. The Applicant states that
the named fiduciaries for Covered Plans are responsible for selecting
an investment manager after a careful and rigorous diligence process,
and that material regulatory investigations and settlements are
disclosed to shareholders in Deutsche Bank's Annual Reports as
appropriate. DIMA states that plans' fiduciaries and their consultants
receive, and have access to, information from multiple sources: they
are provided with presentations and ask questions during the due
diligence phase and during regular update meetings, they receive Form
ADV and Form BD, they have access to Deutsche Bank's Form 20-F and
Annual Reports, and they have access to news reports.\32\ The Applicant
states that Form ADV Part 1, which mentions both the DPA and the U.S.
Conviction, is provided to plan fiduciaries every year.
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\32\ Although the Applicant did not provide an explanation for
the forms it mentioned in its comment, the Department clarifies for
the public that Forms ADV, BD, and 20-F are forms under the
jurisdiction of the U.S. Securities and Exchange Commission (SEC).
To this extent, while the exemption uses the singular term Annual
Report for certain conditions thereunder, SEC Form 20-F is also used
for Annual Reports disclosures that are separate from the Annual
Report required by this exemption.
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In addition, the Applicant disagrees that regulatory actions such
as civil settlements should prevent applicants from obtaining
individual QPAM exemptions. Although the Applicant notes that that the
disclosure of such regulatory actions is now required by the Department
in its amended procedural regulation, such disclosure is not applicable
to DIMA with respect to this particular application because the
application for this exemption was filed with the Department prior to
April 8, 2024.
The Department's position is that the mere existence of such a
regulatory action, the target of which is a DB QPAM or an affiliate of
the DB QPAM, will not necessarily preclude a finding by the Department
that exemptive relief from Section I(g) meets the statutory standard
under ERISA Section 408(a). The Department notes that, pursuant to its
exemption procedure regulation, during the pendency of an application
for exemption with the Department, an applicant must promptly notify
the Department if they discover that any fact or representation changes
during this period, anything occurs that may affect the continuing
accuracy of any such fact or representation, or if a material fact or
representation has been omitted from the exemption application.\33\ If
the Applicant has reason to believe that information
[[Page 27795]]
regarding an adverse regulatory action (e.g., fine, censure, penalty,
civil lawsuit, settlement of civil or criminal lawsuit), taken by other
regulators (e.g., the IRS, SEC, OCC, UK FCA) may constitute a material
fact or representation that should be considered by the Department in
connection with an exemption application, the Applicant should contact
the Department for guidance.
---------------------------------------------------------------------------
\33\ 29 CFR 2570.37(a), found at 76 FR 66650. The Applicant
submitted its application under the Exemption Procedure Regulation
published at 76 FR 66637 (October 7, 2011).
---------------------------------------------------------------------------
Applicant's Comment Regarding Sections III(a) and III(b). Section
III(a) of the notice of proposed exemption provides in pertinent part
that [italics added]:
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 . . .
Section III(b) of the notice of proposed exemption provides in
pertinent part that [italics added]:
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 . . .
The Applicant states that none of the Prior Exemptions contained
the italicized language relating to a single individual and a non-
fiduciary business within Deutsche Bank, and that the language to added
to Sections III(a) and (b) of the proposed exemption is in error.
Furthermore, the Applicant states that the italicized language is not
supported by the facts of the U.S. Conviction or the DPA and should be
deleted.
Department's Response: The Department concurs and has revised both
Section III(a) and Section III(b) in the final exemption, by deleting
the italicized language above and capitalizing ``the'' at the beginning
of each section.
Applicant's Comment Regarding Revision to Section III(a). Section
III(a) of the notice of proposed exemption provides in pertinent part
that:
. . . [T]he 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 [italics added] . . .
The Applicant states that the condition suggests that ``the subject
of . . . the 2021 DPA'' was criminal conduct of DB Group Services even
though the DPA was entered into between the Department of Justice and
Deutsche Bank.
Department's Response: The Department concurs and has revised
Section III(a) by modifying the italicized language to read as follows:
``or the criminal conduct of Deutsche Bank that is the subject of the
2021 DPA.''
Applicant's Comment Regarding Revisions to Sections III(i)(7),
III(i)(8), and III(m)(1). The Applicant states that the notice of
proposed exemption prohibits certain actions by individuals who knew
of, should have known of, or participated in the ``misconduct
underlying the U.S. Conviction or the 2021 DPA.'' The Applicant
requests the Department to replace the language that ``misconduct
underlying the U.S. Conviction or the 2021 DPA'' with ``the criminal
conduct that is the subject of the U.S. Conviction or the 2021 DPA,''
for consistency with the formulation used in the notice of proposed
exemption and in all of the Prior Exemptions.
Department's Response: The Department concurs and has revised
Sections III(i)(7), III(i)(8), and III(m)(1) accordingly.
Applicant's Comment Regarding Revision to Section III(g). Section
III(g) of the notice of proposed exemption provides:
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).
The Applicant requests that the language, ``or because DB Group
Services employees may be double-hatted, seconded, supervised or
otherwise subject to the control of a DB QPAM, including in a
discretionary fiduciary capacity with respect to the DB QPAM clients''
be added to the end of Section III(g) of the proposed exemption, above.
According to the Applicant, the quoted language appears at the end of
Section III(g) in PTE 2021-01 and it should have been included in
Section III(g) of the proposed exemption as well. The Applicant
explains that like many foreign banks, Deutsche Bank uses foreign
service companies, like DB Group Services, to hire and pay employees
who then work for, and are supervised by, other entities in the
Deutsche Bank controlled group. According to the Applicant, DB Group
Services provides employees to the DB QPAMs, which are then responsible
for the employees' training, supervision, compliance, etc., as if they
were employed by such affiliates.
The Applicant submitted to the Department its definition for the
term double-hatted, which the Applicant defines as ``. . . the process
of employing a person in one company, such as a service company, but
actually having the person perform functions and duties for another
affiliated company, which supervises such person's performance.''
Further, the Applicant submitted to the Department its definition for
the term seconded employees, which the Applicant defines as ``a person
who is seconded from one company to another is on the payroll of the
first company but performs job duties and is supervised by the second
company.''
Department's Response: The Department crafted the condition in
Section III(g) of the Prior Exemptions and the proposed exemption in
order to ensure the separation of the convicted entity's employees,
including such employees' management oversight and compliance
structure, from any discretionary management activity by the DB QPAMs.
Upon reviewing the definitions of ``dual-hatted'' and ``seconded''
employees provided by the Applicant, the Department's position is that
the exact employment relationship of such employees needs to be
specified, including but not limited to, information pertaining to
matters such as hiring, firing, discipline, conditions of employment,
promulgation of work rules, assignment of day-to-day job duties, and
issuance of operating instructions. Accordingly, the Department has
revised Section III(g) as follows:
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 (1) they acted as
investment advice fiduciaries within the meaning of ERISA Section
3(21)(A)(ii) or Code Section 4975(e)(3)(B); or (2) DB Group Services
employees perform work on behalf
[[Page 27796]]
of a DB QPAM that is solely responsible for the management and
oversight of the DB Group Services employees' day to day activities
performed on behalf of such QPAM, including the employee's
performance, training, and terms of employment (including
compensation, promotions, and benefits), including any such
employees acting in a discretionary fiduciary capacity with respect
to the DB QPAM clients.
Applicant's Comment Regarding Revision to Section III(i)(9).
Section III(i)(9) of the notice of proposed exemption requires delivery
of the certified Audit Report to the Department's Office of Exemption
Determinations within 30 days following completion of the Audit Report.
The Applicant requests that the period for delivery be extended to 45
days, because, according to the Applicant, 45 days was provided to
provide delivery of the audit report in PTE 2017-04 and PTE 2021-01,
and in the majority of other recent exemptions. The Applicant explains
that ``the certification process can be lengthy, especially for an
organization as large and as globally diverse as Deutsche Bank, and the
Applicant respectfully submits that the additional time will ensure
that the Applicant encounters no logistical hurdles in fulfilling the
requirements of the exemption.''
Department's Response: The Department concurs and has revised
Section III(i)(9) to reflect that the required delivery of the
certified Audit Report to the Department's Office of Exemption
Determinations is 45 days following completion of the Audit Report.
Revision to Section III(j)(7). Section III(j)(7) of the notice of
proposed exemption provides in pertinent part that: ``[w]ithin 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.'' The obligations under Section III(j) include the DB
QPAM's obligation to, in general, provide indemnification to Covered
Plans for violations of ERISA and the Code, breaches of contract and
failure to comply with PTE 84-14; 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; and not to restrict the ability of such Covered Plan to
terminate or withdraw from its arrangement with the DB QPAM with the
exception of reasonable restrictions; not to impose any fees,
penalties, or charges for such termination or withdrawal with the
exception of reasonable fees, etc.
The Applicant requests the Department to replace the sixty calendar
days requirement with a four-month period for the provision of such
notices, as the Department provided in PTE 2017-04 and PTE 2021-01. The
Applicant's request is based on its view that this exemption must be
consistent with the soon to expire PTE 2021-01, and the ``inevitable
delivery difficulties that must be corrected . . . to ensure proper and
complete delivery of notices.''
Department's Response: The Department declines to revise the sixty
(60) calendar days requirement that Section III(j)(7) mandates. In the
Department's view, Covered Plans should receive the notice of the
contractual undertakings from the DB QPAMs as soon as possible so that
(among other things) Covered Plan fiduciaries are made aware of their
rights to, and are able to, withdraw from their arrangement with the DB
QPAM as soon as possible without the imposition of any restrictions or
fees if they determine that such action is prudent, in light of the
Applicant's numerous instances of misconduct. Balanced against the
important need for Covered Plans fiduciaries to understand the
modifications to their contractual rights as soon as possible, the
Applicant did not meet its burden to support a finding by the
Department that four months' time to delivery notice of the DB QPAMs'
contractual obligations in Section III(j) is as protective as 60 days'
notice.
Applicant's Comment Regarding Revision to Section III(u). Section
III(u) of the notice of proposed exemption provides, in pertinent part,
that ``[t]he 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.''
The Applicant requests that this condition be deleted or amended to
delete the 30-day requirement, because: (1) The condition in Section
III(u) has not been imposed upon any previous applicant; (2) the
requirement poses significant logistical difficulties in practice; (3)
whether a record is necessary to demonstrate fulfillment of the
exemption is a subjective determination, requiring knowledgeable
personnel to collect, review, and organize all potentially relevant
documents; (4) the breadth of potential relevancy could render the
document request extremely voluminous; (5) depending on the nature of
the documents, there could be privacy, confidentiality, or similar
concerns to consider and address before production; (6) and the
necessary diversion of resources from normal operations for such un
undertaking is not in the best interest of Covered Plans or their
participants or beneficiaries. Furthermore, according to the Applicant,
the proposed exemption already requires retention of records pertaining
to exemption transactions, and as such the exemption's relief becomes
unavailable if Section III(u) is not met.
Department's Response: The Department declines to remove the 30-day
requirement in Section III(u). The Department notes that Section III(n)
already mandates that each DB QPAM must maintain all records necessary
to demonstrate that the conditions of this exemption have been met, for
a period of six years after a related transaction is executed The
Department's position is that the records necessary to demonstrate
compliance with the conditions of this exemption should be maintained
by the DB QPAMs in a manner consistent with the requirement in Section
III(n). DB QPAMs should have systems in place to avoid unnecessary
delays and expenses in connection with a records request. However, in
light of the possibility that unforeseen administrative complexities
may arise in the production of records within 30 days of a request by
the Department, the Department is revising Section III(u) to permit the
Department to extend the 30-day period upon a showing of necessity by
the DB QPAM, as follows:
``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 except that the Department may extend the 30-day
deadline, in its sole discretion, upon the submission of a written
extension request by the DB QPAM(s) that specifically describes why
additional time is necessary to submit the records.''
Applicant's Comment Regarding Summary of Facts and Representations.
The Applicant represents that the following language in paragraph 19 in
the Summary of Facts and Representations section of the notice of
proposed exemption (the Summary), is inaccurate and should be
clarified. Paragraph 19 in the Summary provides:
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
[[Page 27797]]
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 . . .
The Applicant states that Deutsche Bank agreed to pay $87,091,424
to the U.S. Department of Justice in connection with the DPA rather
than $130 million--the $130 million amount included the settlement with
the U.S. Securities and Exchange Commission of $43 million, which did
not involve a civil penalty.
Department's Response: The Department notes the Applicant's
clarification, and further notes that Section III(s) of the exemption
requires that all the material facts and representations set forth in
the Summary of Facts and Representations are true and accurate.
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) As required by ERISA section 408(a), the Department hereby
finds that the exemption is: (a) Administratively feasible for the
Department; (b) in the interests of Covered Plans and their
participants and beneficiaries; and (c) protective of the rights of the
Covered Plans' participants and beneficiaries.
(3) This exemption is supplemental to, and not in derogation of,
any other ERISA provisions, 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 for determining whether the transaction is in fact a
prohibited transaction.
(4) The availability of this exemption is subject to the express
condition that the material facts and representations contained in the
application accurately describe all material terms of the transactions
that are the subject of the exemption and are true at all times.
Accordingly, after considering the entire record developed in
connection with the Applicant's exemption application, the Department
has determined to grant the following exemption under the authority of
ERISA section 408(a) in accordance with the Department's exemption
procedures set forth in 29 CFR part 2570, subpart B.\34\
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\34\ 76 FR 66637, 66644 (October 27, 2011).
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Exemption
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 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.
[[Page 27798]]
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)
\35\ 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.\36\
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\35\ 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).
\36\ 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.
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Section III. Conditions
(a) 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
criminal conduct of Deutsche Bank that is the subject of 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) 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;
(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: (1) they acted as investment advice
fiduciaries within the meaning of ERISA Section 3(21)(A)(ii) or Code
Section 4975(e)(3)(B); or (2) DB Group Services' employees perform work
on behalf of a DB QPAM that is solely responsible for the management
and oversight of the DB Group Services' employee's day to day
activities performed on behalf of such QPAM, including the employee's
performance, training, and terms of employment (including compensation,
promotions, and benefits), including any such employees acting in a
discretionary fiduciary capacity with respect to the DB QPAM clients;
(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
[[Page 27799]]
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 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, should have known of, or participated in the
criminal conduct that is the subject of the U.S. Conviction or the 2021
DPA may provide the certification
[[Page 27800]]
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, the criminal conduct that is the subject of 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#0b6e26646e6f4b6f6467256c647d"><span class="__cf_email__" data-cfemail="7411591b111034101b185a131b02">[email protected]</span></a>. This delivery must take place no later than
forty-five (45) 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#31541c5e545571555e5d1f565e47"><span class="__cf_email__" data-cfemail="dfbaf2b0babb9fbbb0b3f1b8b0a9">[email protected]</span></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;
(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
[[Page 27801]]
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 the criminal conduct that is subject of 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 criminal conduct that
is subject of 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 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
[[Page 27802]]
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
except that the Department may extend the 30-day deadline, in its sole
discretion, upon the submission of a written extension request by the
DB QPAM(s) that specifically describes why additional time is necessary
to submit the records.
Effective Date: The exemption will be in effect for a period of
three years, beginning on April 18, 2024, and ending on April 17, 2027.
Signed at Washington, DC, this 15th day of April 2024.
George Christopher Cosby,
Director, Office of Exemption Determinations, Employee Benefits
Security Administration, U.S. Department of Labor.
[FR Doc. 2024-08337 Filed 4-17-24; 8:45 am]
BILLING CODE 4510-29-P
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</html>Indexed from Federal Register on April 18, 2024.
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