81 FR 94028 - Exemptions From Certain Prohibited Transaction Restrictions
DEPARTMENT OF LABOR
Employee Benefits Security Administration Federal Register Volume 81, Issue 246 (December 22, 2016)
Employee Benefits Security Administration
Federal Register Volume 81, Issue 246 (December 22, 2016)
| Page Range | 94028-94055 | |
| FR Document | 2016-30566 |
[Federal Register Volume 81, Number 246 (Thursday, December 22, 2016)] [Notices] [Pages 94028-94055] From the Federal Register Online [www.thefederalregister.org] [FR Doc No: 2016-30566] [[Page 94027]] Vol. 81 Thursday, No. 246 December 22, 2016 Part II Department of Labor ----------------------------------------------------------------------- Exemptions From Certain Prohibited Transaction Restrictions; Notice Federal Register / Vol. 81 , No. 246 / Thursday, December 22, 2016 / Notices [[Page 94028]] ----------------------------------------------------------------------- DEPARTMENT OF LABOR Employee Benefits Security Administration Exemptions From Certain Prohibited Transaction Restrictions AGENCY: Employee Benefits Security Administration, Labor. ACTION: Grant of individual exemptions. ----------------------------------------------------------------------- SUMMARY: This document contains exemptions 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 notice includes the following: 2016-13, Deutsche Investment Management Americas Inc. and Certain Current and Future Asset Management Affiliates of Deutsche Bank AG, D-11856; 2016-14, Citigroup, Inc., D-11859; 2016-15, JPMorgan Chase & Co., D-11861; 2016-16, Barclays Capital Inc., D-11862; and 2016-17, UBS Assets Management; UBS Realty Investors LLC; UBS Hedge Fund Solutions LLC; UBS O'Conner LLC; and Certain Future Affiliates in UBS's Asset Management and Wealth Management Americas Divisions, D-11863. SUPPLEMENTARY INFORMATION: A notice was published in the Federal Register of the pendency before the Department of a proposal to grant such exemption. The notice set forth a summary of facts and representations contained in the application for exemption and referred interested persons to the application for a complete statement of the facts and representations. The application has been available for public inspection at the Department in Washington, DC. The notice also invited interested persons to submit comments on the requested exemption to the Department. In addition the notice stated that any interested person might submit a written request that a public hearing be held (where appropriate). The applicant has represented that it has complied with the requirements of the notification to interested persons. No requests for a hearing were received by the Department. Public comments were received by the Department as described in the granted exemption. The notice of proposed exemption was issued and the exemption is being granted solely by the Department because, effective December 31, 1978, section 102 of Reorganization Plan No. 4 of 1978, 5 U.S.C. App. 1 (1996), transferred the authority of the Secretary of the Treasury to issue exemptions of the type proposed to the Secretary of Labor. Statutory Findings In accordance with section 408(a) of the Act and/or section 4975(c)(2) of the Code and the procedures set forth in 29 CFR part 2570, subpart B (76 FR 66637, 66644, October 27, 2011) \1\ and based upon the entire record, the Department makes the following findings: --------------------------------------------------------------------------- \1\ The Department has considered exemption applications received prior to December 27, 2011 under the exemption procedures set forth in 29 CFR part 2570, subpart B (55 FR 32836, 32847, August 10, 1990). --------------------------------------------------------------------------- (a) The exemption is administratively feasible; (b) The exemption is in the interests of the plan and its participants and beneficiaries; and (c) The exemption is protective of the rights of the participants and beneficiaries of the plan. Deutsche Investment Management Americas Inc. (DIMA) and Certain Current and Future Asset Management Affiliates of Deutsche Bank AG (Collectively, the Applicant or the DB QPAMs) Located in New York, New York [Prohibited Transaction Exemption 2016-13; Exemption Application No. D- 11856] Temporary Exemption On November 21, 2016, the Department of Labor (the Department) published a notice of proposed temporary exemption in the Federal Register at 81 FR 83336, proposing that certain entities with specified relationships to DSK or DB Group Services could continue to rely upon the relief provided by PTE 84-14 (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)), notwithstanding the Convictions. No relief from a violation of any other law is provided by this temporary exemption, including any criminal conviction described in the notice of proposed temporary exemption. Furthermore, the Department cautions that the relief in this temporary exemption will terminate immediately if, among other things, an entity within the Deutsche Bank corporate family is convicted of a crime described in Section I(g) of PTE 84-14 during the effective period of the temporary exemption. While such an entity could apply for a new exemption in that circumstance, the Department would not be obligated to grant that exemption. The terms of this temporary exemption have been specifically designed to permit plans to terminate their relationships in an orderly and cost effective fashion in the event of an additional conviction or a determination that it is otherwise prudent for a plan to terminate its relationship with an entity covered by the temporary exemption. Written Comments The Department invited all interested persons to submit written comments and/or requests for a public hearing with respect to the notice of proposed temporary exemption, published in the Federal Register at 81 FR 83336 on November 21, 2016. All comments and requests for a hearing were due by November 26, 2016. The Applicant submitted a comment to the Department during the comment period in connection with the proposed temporary exemption. The comment letter contained the Applicant's request for a number of revisions to the proposed exemption, and was further supplemented through additional correspondence, as requested by the Department. After considering the comment letter, the Department determined that some, but not all, of the requested revisions have merit, and has revised the exemption in the manner described below. All requested revisions and comments, accepted or omitted, will be reconsidered for purposes of the longer term relief proposed in the Federal Register at 81 FR 83400 on November 21, 2016, in connection with Exemption Application Number D-11908. Revision 1. Definition of the Convictions Section II(a) of the proposed temporary exemption reads, in relevant part, that ``[f]or all purposes under this exemption, `conduct' of any person or entity that is the 'subject of [a] Conviction' encompasses any conduct of Deutsche Bank and/or their personnel, that is described in the Plea Agreement (including the Factual Statement thereto), Court judgments (including the judgment of the Seoul Central District Court), criminal complaint documents from the Financial Services Commission in Korea, and other official regulatory or judicial factual findings that are a part of this record.'' The Applicant requests that the Department modify Section II(a) of the proposed temporary exemption, to narrow the scope of activity that is considered to be the ``conduct'' of a person or entity that is the subject of a Conviction. According to the Applicant, the definition as proposed may create [[Page 94029]] undue uncertainty for the Applicant and for plan fiduciaries and counterparties transacting with plans. Deutsche Bank states that the language in Section II(a) expands the ``conduct'' that is considered the subject of the Conviction beyond that which is described as criminal in the Plea Agreement. Moreover, Deutsche Bank suggests that the reference to ``other official regulatory or judicial factual findings that are a part of this record'' is vague and could potentially refer to findings by regulators or in civil proceedings involving the Applicant and disclosed to the Department. The Department concurs with this comment, and has revised Section II(a) as follows: ``For all purposes under this exemption, `conduct' of any person or entity that is the 'subject of [a] 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, and in the `Criminal Acts' section pertaining to `Defendant DSK' in the Decision of the Seoul Central District Court.'' The Department also deleted the parenthetical in paragraph I(a) regarding the term ``participate in'' and reworded the ``participate in'' parenthetical in paragraph I(c) to read: ``(for purposes of this paragraph (c), ``participated in'' includes approving or condoning the misconduct underlying the Conviction).'' Revision 2. Indemnification and Notice Provisions in Section I(j). Section I(j) of the proposed temporary exemption provides that, ``[e]ffective as of the effective date of this temporary exemption, with respect to any arrangement, agreement, or contract between a DB QPAM and an ERISA-covered plan or IRA for which a DB QPAM provides asset management or other discretionary fiduciary services, each DB QPAM agrees'' to comply with certain obligations described in Sections I(j)(1) through (7). Specifically, Section I(j)(7) requires such DB QPAMs ``[t]o indemnify and hold harmless the ERISA-covered plan or IRA for any damages resulting from a violation of applicable laws, 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 Convictions.'' The Applicant requested that the Department modify the language of Section I(j), including Section I(j)(7), in order to narrow the scope of the contractual obligations in two respects. First, the Applicant requested that the contractual obligations described in Section I(j)(1) through (7) apply only with respect to any arrangement, agreement, or contract between a DB QPAM and an ERISA-covered plan or IRA under which the DB QPAM provides asset management or other discretionary fiduciary services in reliance on PTE 84-14. The Department declines to make this revision. Often, parties enter into arrangements with financial institutions in reliance on their QPAM status, irrespective of whether PTE 84-14 is strictly needed or in circumstances where more than one exemption may be available. The broad applicability of the conditions of Section I(j) ensures that the parties' reliance is not misplaced; avoids needless disputes over the particular exemption relied upon by the QPAMs; and encourages a broad culture of compliance and accountability at the QPAMs, consistent with the rightful expectations of plans and IRAs that engage in transactions with QPAMs. A broad application of Section I(j) is in the interest of ERISA-covered plans and IRAs and protective of their rights. The DB QPAMs should be held to a high standard of integrity with respect to all ERISA-covered plans and IRAs, and not just those with respect to which it relies on PTE 84- 14. Secondly, the Applicant claims that the indemnification and hold harmless requirement in subparagraph (7) is overly broad and does not impose any limit on damages to be paid. Therefore, the Applicant requests that scope of the indemnification obligation in Section I(j)(7) be narrowed by removing the phrase ``any damages resulting from a violation of applicable laws, a breach of contract, or any claim arising out of'' and replacing it with `` the reasonable costs of terminating the investment management agreement with the DB QPAM and the retention of a replacement manager arising from.'' The Department declines to make the requested revision, as it would not be in the interest of or protective of the rights of ERISA-covered plans and IRAs to limit such plans' contractual indemnification rights in the event that they have a reasonable basis to seek redress. However, the Department agrees to modify Section I(j)(7) to clarify that ``applicable laws'' refer to the fiduciary duties of ERISA and the prohibited transaction provisions of ERISA and the Code, which are likewise required to be included in the Policies described in Section I(h) of this exemption. Therefore, Section I(j)(7) of the temporary exemption, as granted, requires a DB QPAM ``[t]o indemnify and hold harmless the ERISA-covered plan or IRA for any damages resulting from a violation of ERISA's fiduciary duties and of ERISA and the Code's prohibited transaction provisions, 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 Convictions.'' The Department is also revising the notice requirement in paragraph (j) to require that each DB QPAM will provide a notice of its agreement under Section I(j) to each ERISA-covered plan and IRA for which a DB QPAM provides asset management or other discretionary fiduciary services, and to provide that it must be completed within six (6) months of the effective date of this temporary exemption. Revision 3. Restrictions on Withdrawals in Section I(j) Section I(j)(4) of the proposed temporary exemption requires that the DB QPAMs must agree ``(n)ot to restrict the ability of such ERISA- covered plan or IRA to terminate or withdraw from its arrangement with the DB QPAM (including 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 as a result of an actual lack of liquidity of the underlying assets, provided that such restrictions are applied consistently and in like manner to all such investors.'' The Applicant requests that the Department modify Section I(j)(4) to include additional exceptions under which reasonable withdrawal restrictions on ERISA-covered plans and IRAs may be imposed. Furthermore, the Applicant requests that the withdrawal restrictions apply on a prospective basis only, due to the difficulty of modifying the terms of withdrawal in connection with prior investments in pooled funds that may become subject to ERISA. The Department does not believe that an open-ended exception under which additional withdrawal restrictions may be imposed on ERISA- covered plans and IRAs invested in pooled funds is protective of the rights of participants and beneficiaries of those plans. However, the Department has modified Section I(j)(4) to make it clear that a ``lack of liquidity'' may include a range [[Page 94030]] of circumstances where reasonable restrictions are necessary to protect remaining investors in a pooled fund. Furthermore, the Department has modified Section I(j)(4) in order to clarify that the limitation of adverse consequences to those resulting from a lack of liquidity, valuation issues, or regulatory reasons, is only required with respect to investments in a pooled fund subject to ERISA entered into after the Conviction Date. In any such event, the restrictions must be reasonable and last no longer than reasonably necessary to avoid the adverse consequences to investors in the fund. Therefore, Section I(j)(4) of this temporary exemption, as modified, requires DB QPAMs: ``Not to restrict the ability of such ERISA-covered plan or IRA 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 such arrangements involving investments in pooled funds subject to ERISA entered into after the U.S. Conviction Date, the adverse consequences must relate to a lack of liquidity of the underlying assets, valuation issues, or regulatory reasons that prevent the fund from immediately redeeming an ERISA-covered plan's or IRA's investment, and such restrictions must be applicable to all such investors and effective no longer than reasonably necessary to avoid the adverse consequences.'' Revision 4. Modification of Section I(g) Section I(g) of the proposed temporary exemption provides that, ``DSK and DB Group Services will not provide discretionary asset management services to ERISA-covered plans or IRAs, nor will otherwise act as a fiduciary with respect to ERISA-covered plan and IRA assets.'' The Applicant requests that this condition be modified in order to allow DSK to act as a fiduciary by virtue of providing investment advice. The Applicant states that personnel of DSK may inadvertently become investment advice fiduciaries under Department Regulation section 2510.3-21 in the event such personnel give advice in connection with the execution of a trade that involves an ERISA-covered plan or IRA. According to the Applicant, this situation may arise in connection with the execution of block trades or settlement of trades submitted by third parties that, unbeknownst to DSK, involve ERISA-covered plans and IRAs. Furthermore, the Applicant requests that Section I(g) be modified so that, in the event DSK or DB Group Services establish their own retirement plan, they will not be deemed to have violated this condition. Based on these and similar concerns, the Department has revised Section I(g) to provide that ``Other than with respect to employee benefit plans maintained or sponsored for their own employees or the employees of an affiliate, DSK and DB Group Services will not act as fiduciaries within the meaning of ERISA Section 3(21)(A)(i) or (iii), or Code Section 4975(e)(3)(A) or (C), with respect to ERISA-covered plan and IRA assets; in accordance with this provision, DSK and 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 Section 4975(e)(3)(B) of the Code, or because DB Group Services employees may be doublehatted, 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.'' Revision 6. Technical Corrections and Clarifications The Department made several technical corrections and a clarification to the proposed temporary exemption requested by the Applicant, that are described below: The date of the Korean Conviction correctly provides that January 25, 2016 is the date of the Korean Conviction in the prefatory language of this final temporary exemption. Section I(i)(8) of the final temporary exemption is revised to require that ``[t]he 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 must certify in writing, under penalty of perjury, that such officer has reviewed each Audit Report.'' The Department is revising Section I(j)(1) of the proposed temporary exemption in order to clarify the obligations of DB QPAMs applicable with respect to ERISA-covered plans and IRAs. In this regard, Section I(j)(1) of the final temporary exemption provides that each DB QPAM agrees ``[t]o comply with ERISA and the Code, as applicable with respect to such ERISA-covered plan or IRA; to refrain from engaging in prohibited transactions that are not otherwise exempt (and to promptly correct any inadvertent prohibited transactions); and to comply with the standards of prudence and loyalty set forth in section 404 of ERISA, as applicable, with respect to each such ERISA- covered plan and IRA.'' Section II(b) of the final temporary exemption corrects the typo in ``DB Group Services'' in the proposed temporary exemption. Section II(b) of the final temporary exemption correctly refers to section VI(d)(1) of PTE 84-14 in the definition of ``affiliate.'' The prefatory language and Section II(e) of the final temporary exemption correctly provides that ``DB Group Services (UK) Limited'' is the full name of DB Group Services. Section II(g) of the final temporary exemption correctly refers to the ``Agreed Statement of Fact'' and ``the charge brought'' in connection with the definition of ``Plea Agreement,'' and the phrase ``related to the manipulation of the London Interbank Offered Rate (LIBOR)'' has been struck from technical description of the charge. Finally, the Department clarifies that, to the extent that the Training requirements in Section I(h)(2) of the temporary exemption and PTE 2016-12 are consistent, such provisions should be harmonized so that the sequential exemptions do not inadvertently require multiple trainings per year covering the same material. After giving full consideration to the entire record, the Department has decided to grant the temporary exemption. The complete application file for the temporary exemption (Exemption Application No. D-11856), including all supplemental submissions received by the Department, is available for public inspection in the Public Disclosure Room of the Employee Benefits Security Administration, Room N-1515, U.S. Department of Labor, 200 Constitution Avenue NW., Washington, DC 20210. For a more complete statement of the facts and representations supporting the Department's decision to grant this Extension, refer to the notice of proposed extension, published on November 21, 2016, at 81 FR 8336. Temporary Exemption Operative Language Section I: Covered Transactions Certain entities with specified relationships to Deutsche Bank AG (hereinafter, the DB QPAMs, as further defined in Section II(b)) will not be precluded from relying on the [[Page 94031]] exemptive relief provided by Prohibited Transaction Exemption (PTE) 84- 14,\2\ notwithstanding (1) the ``Korean Conviction'' against Deutsche Securities Korea Co., a South Korean affiliate of Deutsche Bank AG (hereinafter, DSK, as further defined in Section II(f)), entered on January 25, 2016; and (2) the ``US Conviction'' against DB Group Services (UK) Limited, an affiliate of Deutsche Bank based in the United Kingdom (hereinafter, DB Group Services, as further defined in Section II(e)), scheduled to be entered on April 3, 2017 (collectively, the Convictions, as further defined in Section II(a)),\3\ for a period of up to 12 months beginning on the U.S. Conviction Date (as further defined in Section II(d)), provided that the following conditions are satisfied: --------------------------------------------------------------------------- \2\ 49 FR 9494 (March 13, 1984), as corrected at 50 FR 41430 (October 10, 1985), as amended at 70 FR 49305 (August 23, 2005), and as amended at 75 FR 38837 (July 6, 2010). \3\ Section I(g) of PTE 84-14 generally provides that ``[n]either the QPAM nor any affiliate thereof . . . nor any owner . . . of a 5 percent or more interest in the QPAM is a person who within the 10 years immediately preceding the transaction has been either convicted or released from imprisonment, whichever is later, as a result of'' certain criminal activity therein described. --------------------------------------------------------------------------- (a) The DB QPAMs (including their officers, directors, agents other than Deutsche Bank, and employees of such DB QPAMs) did not know of, have reason to know of, or participate in the criminal conduct of DSK and DB Group Services that is the subject of the Convictions; (b) The DB QPAMs (including their officers, directors, agents other than Deutsche Bank, and employees of such DB QPAMs) did not receive direct compensation, or knowingly receive indirect compensation, in connection with the criminal conduct that is the subject of the Convictions; (c) The DB QPAMs will not employ or knowingly engage any of the individuals that participated in the criminal conduct that is the subject of the Convictions (for purposes of this paragraph (c), ``participated in'' includes approving or condoning the misconduct underlying the Convictions); (d) A DB QPAM will not use its authority or influence to direct an ``investment fund'' (as defined in Section VI(b) of PTE 84-14) that is subject to ERISA or the Code and managed by such DB QPAM to enter into any transaction with DSK or DB Group Services, or engage DSK or DB Group Services to provide any service to such investment fund, for a direct or indirect fee borne by such investment fund, regardless of whether such transaction or service may otherwise be within the scope of relief provided by an administrative or statutory exemption; (e) Any failure of the DB QPAMs to satisfy Section I(g) of PTE 84- 14 arose solely from the Convictions; (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 Convictions; or cause the QPAM, affiliates, or related parties to directly or indirectly profit from the criminal conduct that is the subject of the Convictions; (g) Other than with respect to employee benefit plans maintained or sponsored for their own employees or the employees of an affiliate, DSK and DB Group Services will not act as fiduciaries within the meaning of ERISA Section 3(21)(A)(i) or (iii), or Code Section 4975(e)(3)(A) or (C), with respect to ERISA-covered plan and IRA assets; in accordance with this provision, DSK and 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 Section 4975(e)(3)(B) of the Code, or because DB Group Services employees may be doublehatted, 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; (h)(1) Each DB QPAM must immediately develop, implement, maintain, and follow written policies and procedures (the Policies) requiring and reasonably designed to ensure that: (i) The asset management decisions of the DB QPAM are conducted independently of Deutsche Bank's corporate management and business activities, including the corporate management and business activities of DB Group Services and DSK; (ii) The DB QPAM fully complies with ERISA's fiduciary duties and with ERISA and the Code's prohibited transaction provisions, and does not knowingly participate in any violations of these duties and provisions with respect to ERISA-covered plans and IRAs; (iii) The DB QPAM does not knowingly participate in any other person's violation of ERISA or the Code with respect to ERISA-covered plans and IRAs; (iv) Any filings or statements made by the DB QPAM to regulators, including but not limited to, the Department of Labor, the Department of the Treasury, the Department of Justice, and the Pension Benefit Guaranty Corporation, on behalf of ERISA-covered plans or IRAs are materially accurate and complete, to the best of such QPAM's knowledge at that time; (v) The DB QPAM does not make material misrepresentations or omit material information in its communications with such regulators with respect to ERISA-covered plans or IRAs, or make material misrepresentations or omit material information in its communications with ERISA-covered plan and IRA clients; (vi) The DB QPAM complies with the terms of this temporary exemption; and (vii) Any violation of, or failure to comply with, an item in subparagraph (ii) through (vi), is corrected promptly upon discovery, and any such violation or compliance failure not promptly corrected is reported, upon the discovery of such failure to promptly correct, in writing, to appropriate corporate officers, the head of compliance and the General Counsel (or their functional equivalent) of the relevant DB QPAM, the independent auditor responsible for reviewing compliance with the Policies, and an appropriate fiduciary of any affected ERISA- covered plan or IRA where such fiduciary is independent of Deutsche Bank; however, with respect to any ERISA-covered plan or IRA sponsored by an ``affiliate'' (as defined in Section VI(d) of PTE 84-14) of Deutsche Bank or beneficially owned by an employee of Deutsche Bank or its affiliates, such fiduciary does not need to be independent of Deutsche Bank. A DB QPAM will not be treated as having failed to develop, implement, maintain, or follow the Policies, provided that it corrects any instance of noncompliance promptly when discovered or when it 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 immediately develop and implement a program of training (the Training), conducted at least annually, for all relevant DB QPAM asset/portfolio management, trading, legal, compliance, and internal audit personnel. The Training must be set forth in the Policies and 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 temporary exemption (including any loss of exemptive relief provided [[Page 94032]] herein), and prompt reporting of wrongdoing; (i)(1) Each DB QPAM submits to an audit conducted by an independent auditor, who has been prudently selected and who has appropriate technical training and proficiency with ERISA and the Code, to evaluate the adequacy of, and the DB QPAM's compliance with, the Policies and Training described herein. The audit requirement must be incorporated in the Policies. The audit period under this temporary exemption begins on October 24, 2016, and continues through the entire effective period of this temporary exemption (the Audit Period). The Audit Period will cover the contiguous periods of time during which PTE 2016-12, the Extension of PTE 2015-15 (81 FR 75153, October 28, 2016) (the Extension) and this temporary exemption are effective. The audit terms contained in this paragraph (i) supersede the terms of paragraph (f) of the Extension. However, in determining compliance with the conditions for the Extension and this temporary exemption, including the Policies and Training requirements, for purposes of conducting the audit, the auditor will rely on the conditions for exemptive relief as then applicable to the respective portions of the Audit Period. The audit must be completed no later than six (6) months after the period to which the audit applies; (2) To the extent necessary for the auditor, in its sole opinion, to complete its audit and comply with the conditions for relief described herein, and as permitted by law, 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; (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 temporary 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 ERISA-covered plans and IRAs sufficient in size and nature to afford the auditor a reasonable basis to determine the operational compliance with the Policies and Training; (5) For each audit, on or before the end of the relevant period described in Section I(i)(1) for completing the audit, the auditor must issue a written report (the Audit Report) to Deutsche Bank and the DB QPAM to which the audit applies that describes the procedures performed by the auditor during the course of its examination. The Audit Report must include the auditor's specific determinations regarding: The adequacy of the DB QPAM's Policies and Training; the 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 I(h) above. 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 DB QPAM must be promptly addressed by such DB QPAM, and any action taken by such DB QPAM to address such recommendations must be included in an addendum to the Audit Report (which addendum is completed prior to the certification described in Section I(i)(7) below). 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 the DB QPAM has complied with the requirements under this subsection must be based on evidence that demonstrates the DB QPAM has actually implemented, maintained, and followed the Policies and Training required by this temporary exemption; (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 General Counsel, or one of the three most senior executive officers of the DB QPAM to which the Audit Report applies, must certify in writing, under penalty of perjury, that the officer has reviewed the Audit Report and this temporary exemption; addressed, corrected, or remedied any inadequacy identified in the Audit Report; and determined that the Policies and Training in effect at the time of signing are adequate to ensure compliance with the conditions of this temporary exemption, and with the applicable provisions of ERISA and the Code; (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 must certify in writing, under penalty of perjury, that such officer has reviewed each Audit Report; (9) Each DB QPAM provides its certified Audit Report, by regular mail to: The Department's Office of Exemption Determinations (OED), 200 Constitution Avenue NW., Suite 400, Washington, DC 20210, or by private carrier to: 122 C Street NW., Suite 400, Washington, DC 20001-2109, no later than 45 days following its completion. The Audit Report will be part of the public record regarding this temporary exemption. Furthermore, each DB QPAM must make its Audit Report unconditionally available for examination by any duly authorized employee or representative of the Department, other relevant regulators, and any fiduciary of an ERISA-covered plan or IRA, the assets of which are managed by such DB QPAM; (10) Each DB QPAM and the auditor must submit to OED: (A) Any engagement agreement(s) entered into pursuant to the engagement of the auditor under this exemption; and (B) any engagement agreement entered into with any other entity retained in connection with such QPAM's compliance with the Training or Policies conditions of this temporary exemption, no later than six (6) months after the effective date of this temporary exemption (and one month after the execution of any agreement thereafter); (11) The auditor must provide OED, upon request, all of the workpapers created and utilized in the course of the audit, including, but not limited to: The audit plan; audit testing; identification of any instance of noncompliance by the relevant DB QPAM; and an explanation of any corrective or remedial action taken by the applicable DB QPAM; and (12) Deutsche Bank must notify the Department at least 30 days prior to any substitution of an auditor, except that no such replacement will meet the requirements of this paragraph unless and until Deutsche Bank demonstrates to the Department's satisfaction that such new auditor is independent of Deutsche Bank, experienced in the matters that are the subject of the exemption, and capable of making the determinations required of this exemption; [[Page 94033]] (j) As of the effective date of this temporary exemption, with respect to any arrangement, agreement, or contract between a DB QPAM and an ERISA-covered plan or IRA for which a DB QPAM provides asset management or other discretionary fiduciary services, each DB QPAM agrees: (1) To comply with ERISA and the Code, as applicable with respect to such ERISA-covered plan or IRA; to refrain from engaging in prohibited transactions that are not otherwise exempt (and to promptly correct any inadvertent prohibited transactions); and to comply with the standards of prudence and loyalty set forth in section 404 of ERISA, as applicable, with respect to each such ERISA-covered plan and IRA; (2) Not to require (or otherwise cause) the ERISA-covered plan or IRA to waive, limit, or qualify the liability of the DB QPAM for violating ERISA or the Code or engaging in prohibited transactions; (3) Not to require the ERISA-covered plan or IRA (or sponsor of such ERISA-covered plan or beneficial owner of such IRA) to indemnify the DB QPAM for violating ERISA or engaging in prohibited transactions, except for violations or prohibited transactions caused by an error, misrepresentation, or misconduct of a plan fiduciary or other party hired by the plan fiduciary who is independent of Deutsche Bank; (4) Not to restrict the ability of such ERISA-covered plan or IRA 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 such arrangements involving investments in pooled funds subject to ERISA entered into after the U.S. Conviction Date, the adverse consequences must relate to a lack of liquidity of the underlying assets, valuation issues, or regulatory reasons that prevent the fund from immediately redeeming an ERISA-covered plan's or IRA's investment, and such restrictions must be applicable to all such investors and effective no longer than reasonably necessary to avoid the adverse consequences; (5) Not to impose any fees, penalties, or charges for such termination or withdrawal with the exception of reasonable fees, appropriately disclosed in advance, that are specifically designed to prevent generally recognized abusive investment practices or specifically designed to ensure equitable treatment of all investors in a pooled fund in the event such withdrawal or termination may have adverse consequences for all other investors, provided that such fees are applied consistently and in like manner to all such investors; (6) Not to include exculpatory provisions disclaiming or otherwise limiting liability of the DB QPAM for a violation of such agreement's terms, except 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; and (7) To indemnify and hold harmless the ERISA-covered plan or IRA for any damages resulting from a violation of ERISA's fiduciary duties and of ERISA and the Code's prohibited transaction provisions, 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 Convictions; Within six (6) months of the effective date of this temporary exemption, each DB QPAM will provide a notice of its agreement and obligations under this Section I(j) to each ERISA-covered plan and IRA for which the DB QPAM provides asset management or other discretionary fiduciary services; (k) The DB QPAMs comply with each condition of PTE 84-14, as amended, with the sole exceptions of the violations of Section I(g) of PTE 84-14 that are attributable to the Convictions; (l) Deutsche Bank disgorged all of its profits generated by the spot/futures-linked market manipulation activities of DSK personnel that led to the Conviction against DSK entered on January 25, 2016, in Seoul Central District Court; (m) Each DB QPAM will maintain records necessary to demonstrate that the conditions of this temporary exemption have been met, for six (6) years following the date of any transaction for which such DB QPAM relies upon the relief in the temporary exemption; (n) During the effective period of this temporary exemption, Deutsche Bank: (1) Immediately discloses to the Department any Deferred Prosecution Agreement (a DPA) or Non-Prosecution Agreement (an NPA) that Deutsche Bank or any of its affiliates enter into with the U.S Department of Justice, to the extent such DPA or NPA involves conduct described in Section I(g) of PTE 84-14 or section 411 of ERISA; and (2) immediately provides the Department any information requested by the Department, as permitted by law, regarding the agreement and/or the conduct and allegations that led to the agreements; and (o) A DB QPAM will not fail to meet the terms of this temporary exemption, solely because a different DB QPAM fails to satisfy a condition for relief under this temporary exemption described in Sections I(c), (d), (h), (i), (j), (k), and (m). Section II: Definitions (a) The term ``Convictions'' means (1) the judgment of conviction against DB Group Services, in Case 3:15-cr-00062-RNC to be entered in the United States District Court for the District of Connecticut to a single count of wire fraud, in violation of 18 U.S.C. Sec. 1343, and (2) the judgment of conviction against DSK entered on January 25, 2016, in Seoul Central District Court, relating to charges filed against DSK under Articles 176, 443, and 448 of South Korea's Financial Investment Services and Capital Markets Act for spot/futures-linked market price manipulation. For all purposes under this exemption, ``conduct'' of any person or entity that is the ``subject of [a] 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, and in the ``Criminal Acts'' section pertaining to ``Defendant DSK'' in the Decision of the Seoul Central District Court; (b) The term ``DB QPAM'' means a ``qualified professional asset manager'' (as defined in section VI(a) \4\ of PTE 84-14) that relies on the relief provided by PTE 84-14 and with respect to which DSK or DB Group Services is a current or future ``affiliate'' (as defined in section VI(d)(1) of PTE 84-14). For purposes of this temporary exemption, Deutsche Bank Securities, Inc. (DBSI), including all entities over which it exercises control; and Deutsche Bank AG, including all of its branches, are excluded from the definition of a DB QPAM; --------------------------------------------------------------------------- \4\ In general terms, a QPAM is an independent fiduciary that is a bank, savings and loan association, insurance company, or investment adviser that meets certain equity or net worth requirements and other licensure requirements and that has acknowledged in a written management agreement that it is a fiduciary with respect to each plan that has retained the QPAM. --------------------------------------------------------------------------- (c) The term ``Deutsche Bank'' means Deutsche Bank AG but, unless indicated otherwise, does not include its subsidiaries or affiliates; [[Page 94034]] (d) The term ``U.S. Conviction Date'' means the date that a judgment of conviction against DB Group Services, in Case 3:15-cr- 00062-RNC, is entered in the United States District Court for the District of Connecticut, currently scheduled for April 3, 2017; (e) The term ``DB Group Services'' means DB Group Services (UK) Limited, an ``affiliate'' of Deutsche Bank (as defined in Section VI(c) of PTE 84-14) based in the United Kingdom; (f) The term ``DSK'' means Deutsche Securities Korea Co., a South Korean ``affiliate'' of Deutsche Bank (as defined in Section VI(c) of PTE 84-14); (g) The term ``Plea Agreement'' means the Plea Agreement (including the Agreed Statement of Fact), dated April 23, 2015, between the Antitrust Division and Fraud Section of the Criminal Division of the U.S. Department of Justice (the DOJ) and DB Group Services resolving the charge brought by the DOJ in Case 3:15-cr-00062-RNC against DB Group Services for wire fraud in violation of Title 18, United States Code, Section 1343; and (h) The terms ``ERISA-covered plan'' and ``IRA'' mean, respectively, a plan subject to Part 4 of Title I of ERISA and a plan subject to section 4975 of the Code. Effective Date: This temporary exemption will be effective for the period beginning on the U.S. Conviction Date, and ending on the earlier of the date that is twelve months following the U.S. Conviction Date; or the effective date of a final agency action made by the Department in connection with Exemption Application No. D-11908, an application for long-term exemptive relief for the covered transactions described herein. FOR FURTHER INFORMATION CONTACT: Mr. Scott Ness of the Department, telephone (202) 693-8561, Office of Exemption Determinations, Employee Benefits Security Administration, U.S. Department of Labor (this is not a toll-free number). Citigroup, Inc. (Citigroup or the Applicant) Located in New York, New York [Prohibited Transaction Exemption 2016-14; Exemption Application No. D- 11859] Temporary Exemption On November 21, 2016, the Department of Labor (the Department) published a notice of proposed temporary exemption in the Federal Register at 81 FR 83350, proposing that certain entities with specified relationships to Citigroup could continue to rely upon the relief provided by PTE 84-14 (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)), notwithstanding the Conviction for a period of up to twelve months beginning on the Conviction Date. No relief from a violation of any other law is provided by this temporary exemption, including any criminal conviction described in the proposed temporary exemption. Furthermore, the Department cautions that the relief in this temporary exemption will terminate immediately if, among other things, an entity within the Citigroup corporate structure is convicted of a crime described in Section I(g) of PTE 84-14 (other than the Conviction) during the effective period of the temporary exemption. While such an entity could apply for a new exemption in that circumstance, the Department would not be obligated to grant the exemption. The terms of this temporary exemption have been specifically designed to permit plans to terminate their relationships in an orderly and cost effective fashion in the event of an additional conviction or a determination that it is otherwise prudent for a plan to terminate its relationship with an entity covered by the temporary exemption. Written Comments The Department invited all interested persons to submit written comments and/or requests for a public hearing with respect to the notice of proposed temporary exemption, published in the Federal Register at 81 FR 83350 on November 21, 2016. All comments and requests for a hearing were due by November 28, 2016. The Department received written comments from the Applicant, the substance of which is discussed below. During the comment period, the Applicant submitted a request for the Department to make a number of revisions to the proposed exemption. Thereafter, the Applicant submitted additional information in support of its request. After considering these submissions, the Department has determined to make certain of the revisions sought by the Applicant. The revisions declined by the Department, as well as the revisions described below, will be reconsidered as part of the review process for the proposed five year exemption published in the Federal Register at 81 FR 83416 on November 21, 2016, in connection with Exemption Application Number D-11909. Revision 1. Deletion of Reference to the Markets and Securities Services Business of Citigroup in Section I(d) of the Proposed Exemption Section I(d) of the proposed temporary exemption provides that ``[a] Citigroup Affiliated QPAM will not use its authority or influence to direct an ``investment fund'' (as defined in Section VI(b) of PTE 84-14), that is subject to ERISA or the Code and managed by such Citigroup Affiliated QPAM, to enter into any transaction with Citicorp or the Markets and Securities Services Business of Citigroup, or to engage Citicorp or the Markets and Securities Services Business of Citigroup, to provide any service to such investment fund, for a direct or indirect fee borne by such investment fund, regardless of whether such transaction or service may otherwise be within the scope of relief provided by an administrative or statutory exemption[.]'' The Applicant represents that a sudden cessation of services on December 15, 2016, by the Markets and Securities Services Business of Citigroup to affected plans, such as agency securities lending services, would be disruptive to those plans. The Applicant seeks deletion of the condition's reference to ``the Markets and Securities Services Business of Citigroup.'' The Department concurs with this comment, as has revised the condition accordingly. However, the Department may reconsider making such modification in connection with its determination whether or not to grant relief in Exemption Application Number D-11909, the proposed five year exemption published in the Federal Register at 81 FR 83416 on November 21, 2016. Revision 2. Deletion of Reference to the Markets and Securities Services Business of Citigroup in Section I(g) of the Proposed Exemption Section I(g) of the proposed temporary exemption provides that ``Citicorp and the Markets and Securities Services Business of Citigroup have not provided nor will provide discretionary asset management services to ERISA-covered plans or IRAs, or otherwise act as a fiduciary with respect to ERISA-covered plan or IRA assets[.]'' The Applicant represents that the Markets and Securities Services Business of Citigroup may be deemed to involve fiduciary conduct. The Applicant states that requiring those services to be terminated suddenly would be disruptive to affected plans. The Applicant therefore seeks deletion [[Page 94035]] of the condition's reference to ``the Markets and Securities Services Business of Citigroup.'' The Department concurs with this comment, and has revised the condition in this final temporary exemption, in order to avoid a significant disruption and damages to affected ERISA-covered plans and IRAs. Section I(g) of the final exemption now provides that ``Other than with respect to employee benefit plans maintained or sponsored for their own employees or the employees of an affiliate, Citicorp will not act as a fiduciary within the meaning of ERISA Section 3(21)(A)(i) or (iii), or Code Section 4975(e)(3)(A) or (C), with respect to ERISA- covered plan and IRA assets; in accordance with this provision, Citicorp 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 Section 4975(e)(3)(B) of the Code.'' Revision 3. Deletion of Reference to the Markets and Securities Services Business of Citigroup in Section I(h) of the Proposed Exemption. Section I(h)(1)(i) provides that ``each Citigroup Affiliated QPAM must develop, implement, maintain, and follow written policies (the Policies) requiring and reasonably designed to ensure that:'' . . . ``(i) The asset management decisions of the Citigroup Affiliated QPAM are conducted independently of the corporate management and business activities of Citigroup, including the Markets and Securities Services Business of Citigroup[.]'' The Applicant seeks deletion of the condition's reference to the Markets and Securities Services Business of Citigroup, in order to avoid disruption to affected plans and IRAs. The Department concurs with this comment, and has revised the condition accordingly. Revision 4. References to the Conviction The prefatory language of Section I of the proposed temporary exemption provides that ``the Citigroup Affiliated QPAMs and the Citigroup Related QPAMs, as defined in Sections II(a) and II(b), respectively, will not be precluded from relying on the exemptive relief provided by Prohibited Transaction Class Exemption 84-14 (PTE 84-14 or the QPAM Exemption), notwithstanding the judgment of conviction against Citicorp (the Conviction, as defined in Section II(c)), for engaging in a conspiracy to: (1) Fix the price of, or (2) eliminate competition in the purchase or sale of the euro/U.S. dollar currency pair exchanged in the Foreign Exchange (FX) Spot Market.'' Furthermore, Section II(e) of the proposed temporary exemption provides that, in relevant part, ``[t]he term `Conviction' means the judgment of conviction against Citigroup for violation of the Sherman Antitrust Act, 15 U.S.C. 1, which is scheduled to be entered in the District Court for the District of Connecticut (the District Court) (Case Number 3:15-cr-78-SRU), in connection with Citigroup, through one of its euro/U.S. dollar (EUR/USD) traders, entering into and engaging in a combination and conspiracy to fix, stabilize, maintain, increase or decrease the price of, and rig bids and offers for, the EUR/USD currency pair exchanged in the FX spot market by agreeing to eliminate competition in the purchase and sale of the EUR/USD currency pair in the United States and elsewhere. For all purposes under this temporary exemption, if granted, ``conduct'' of any person or entity that is the ``subject of [a] Conviction'' encompasses any conduct of Citigroup and/ or their personnel, that is described in the Plea Agreement, (including the Factual Statement), and other official regulatory or judicial factual findings that are a part of this record[.]'' The Applicant requests that the Department modify the prefatory language in Section I and the language of Section II(e) of the proposed temporary exemption, to more precisely define the term ``Conviction'' and narrow the scope of activity that is considered to be the ``conduct'' of a person or entity that is the subject of a Conviction. According to the Applicant, the reference to Conviction in the prefatory language of Section I may be confusing for plans and their counterparties. Furthermore, the Applicant states that the proposed definition of Conviction in Section II(e) expands the ``conduct'' that is considered the subject of the Conviction beyond that which is described as criminal in the Plea Agreement, and the reference to ``other official regulatory or judicial factual findings that are a part of this record'' is vague and could potentially refer to findings by regulators or in civil proceedings involving the Applicant and disclosed to the Department. The Department concurs with the Applicant's comment and has modified the language in the final temporary exemption to provide that ``[t]he term ``Conviction'' means the judgment of conviction against Citicorp for violation of the Sherman Antitrust Act, 15 U.S.C. 1, which is scheduled to be entered in the District Court for the District of Connecticut (the District Court) (Case Number 3:15-cr-78-SRU). For all purposes under this exemption, ``conduct'' of any person or entity that is the ``subject of [a] Conviction'' encompasses the conduct described in Paragraph 4(g)-(i) of the Plea Agreement filed in the District Court in Case Number 3:15-cr-78-SRU.'' Furthermore, the Department deleted the parenthetical in paragraph (a) regarding the term ``participate in'' and reworded the ``participate in'' parenthetical in paragraph (c) to read: ``(for purposes of this paragraph (c), ``participated in'' includes approving or condoning the misconduct underlying the Conviction).'' Revision 5. The Policies and Training in Section I(h) Section I(h)(1) of the proposed temporary exemption requires each Citigroup Affiliated QPAM to ``develop, implement, maintain and follow'' the written policies and procedures (the Policies) described in Section I(h)(1)(i) through (vii). Furthermore, Section I(h)(2) requires each Citigroup Affiliated QPAM to ``develop and implement a program of training (the Training)'' described therein. In its comment and in subsequent conversations with the Department, the Applicant requested that Sections I(h)(1) and (2) be modified to allow the Citigroup Affiliated QPAMs a period of up to six (6) months following the date of the Conviction to meet these requirements. The Department concurs with the Applicant's request. Therefore, in the final temporary exemption, the Department has modified Section I(h)(1) and (2) to provide that, respectively, ``Within six (6) months of the Conviction Date, each Citigroup Affiliated QPAM must develop, implement, maintain, and follow written policies and procedures (the Policies) . . .'' and ``Within six (6) months of the Conviction Date, each Citigroup Affiliated QPAM must develop and implement a program of training (the Training) . . . .'' Revision 6. Indemnification Provision in Section I(i) Section I(i) of the proposed temporary exemption provides that, ``(1) Effective as of the effective date of this temporary exemption, with respect to any arrangement, agreement, or contract between a Citigroup Affiliated QPAM and an ERISA-covered plan or IRA for which such Citigroup Affiliated QPAM provides asset management or other discretionary fiduciary services, each Citigroup Affiliated QPAM agrees: ``. . . ``(vii) To indemnify and hold harmless [[Page 94036]] the ERISA-covered plan or IRA for any damages resulting from a violation of applicable laws, a breach of contract, or any claim arising out of the failure of such Citigroup Affiliated QPAM to qualify for the exemptive relief provided by PTE 84-14 as a result of a violation of Section I(g) of PTE 84-14 other than the Conviction.'' The Applicant requested that the Department modify the language of Sections I(i)(1) and I(i)(1)(vii) in order to narrow the scope of the contractual obligations in two respects. First, the Applicant requested that the contractual obligations described in Section I(i) apply only with respect to any arrangement, agreement, or contract between a Citigroup Affiliated QPAM and an ERISA-covered plan or IRA under which the Citigroup Affiliated QPAM provides asset management or other discretionary fiduciary services in reliance on PTE 84-14. The Department declines to make this revision. Often, parties enter into arrangements with financial institutions in reliance on their QPAM status, irrespective of whether PTE 84-14 is strictly needed or in circumstances where more than one exemption may be available. The broad applicability of the conditions of Section I(i) ensures that the parties' reliance is not misplaced; avoids needless disputes over the particular exemption relied upon by the QPAMs; and encourages a broad culture of compliance and accountability at the QPAMs, consistent with the rightful expectations of plans and IRAs that engage in transactions with QPAMs. A broad application of Section I(i) is in the interest of ERISA-covered plans and IRAs and protective of their rights. The Citigroup Affiliated QPAMs should be held to a high standard of integrity with respect to all ERISA-covered plans and IRAs, and not just those with respect to which it relies on PTE 84-14. Secondly, the Applicant requested that Section I(i)(1)(vii) be deleted, or alternatively, that the provision should be modified by adding the phrase ``To the extent required by applicable law,'' at the beginning of the paragraph. The Applicant claims that the indemnification and hold harmless requirement in subparagraph (vii) would unnecessarily create confusion and likely extensive litigation in the event of a claim by a plan or IRA for indemnity. The Department declines to make the requested revision, but agrees to modify the section to make it clear that the ``applicable laws'' referred to in Section I(i)(1)(vii) refer to the fiduciary duties of ERISA and the prohibited transaction provisions of ERISA and the Code. The requirement to comply with ERISA's fiduciary duties and with ERISA and the Code's prohibited transaction provisions, is included in the Policies required under the exemption. Therefore, Section I(i)(1)(vii) of the temporary exemption, as granted, requires a Citigroup Affiliated QPAM ``[t]o indemnify and hold harmless the ERISA-covered plan or IRA for any damages resulting from a violation of ERISA's fiduciary duties and of ERISA and the Code's prohibited transaction provisions, a breach of contract, or any claim arising out of the failure of such Citigroup Affiliated QPAM to qualify for the exemptive relief provided by PTE 84- 14 as a result of a violation of Section I(g) of PTE 84-14 other than the Conviction.'' Revision 7. Restrictions on Withdrawals in Section I(i) Section I(i)(1)(iv) of the proposed temporary exemption requires that the Citigroup Affiliated QPAMs must agree ``[n]ot to restrict the ability of such ERISA-covered plan or IRA to terminate or withdraw from its arrangement with the Citigroup Affiliated QPAM (including 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 as a result of an actual lack of liquidity of the underlying assets, provided that such restrictions are applied consistently and in like manner to all such investors.'' The Department has modified Section I(i)(1)(iv) to make it clear that a lack of liquidity may include similar circumstances where reasonable restrictions are necessary to protect remaining investors in a pooled fund. Furthermore, the Department has modified Section I(i)(4) in order to clarify that the limitation of adverse consequences to those resulting from a lack of liquidity, valuation issues, or regulatory reasons, is only required with respect to investments in a pooled fund subject to ERISA entered into after the Conviction Date. In any such event, the restrictions must be reasonable and last no longer than reasonably necessary to avoid the adverse consequences to investors in the fund. Therefore, Section I(i)(1)(iv) of the final temporary exemption requires Citigroup Affiliated QPAMs ``Not to restrict the ability of such ERISA-covered plan or IRA to terminate or withdraw from its arrangement with the Citigroup Affiliated QPAM with respect to any investment in a separately managed account or pooled fund subject to ERISA and managed by such QPAM, with the exception of reasonable restrictions, appropriately disclosed in advance, that are specifically designed to ensure equitable treatment of all investors in a pooled fund in the event such withdrawal or termination may have adverse consequences for all other investors. In connection with any such arrangements involving investments in pooled funds subject to ERISA entered into after the Conviction Date, the adverse consequences must relate to a lack of liquidity of the pooled fund's underlying assets, valuation issues, or regulatory reasons that prevent the fund from immediately redeeming an ERISA-covered plan's or IRA's investment, and such restrictions are applicable to all such investors and effective no longer than reasonably necessary to avoid the adverse consequences.'' Revision 8. Definition of Citigroup Affiliated QPAM in Section II(a) Section II(a) of the proposed temporary exemption precludes Citicorp and ``Citigroup's Markets and Securities Services Business'' from acting as QPAMs. The Department is removing this reference to ``Citigroup's Markets and Securities Services Business'' for purposes of this one year exemption. Revision 9. New Definition of Citicorp The Applicant requested in its comment that the Department adds a definition for the term ``Citicorp.'' The Department concurs and has modified the temporary exemption by adding Section II(g), a definition for the term ``Citicorp,'' which is defined as ``a financial services holding company organized and existing under the laws of Delaware and does not include any subsidiaries or other affiliates.'' Revision 10. Technical Corrections The Department has made certain technical corrections to the proposed temporary exemption requested by the Applicant that are described below: The references to the definition of ``Conviction'' and ``Conviction Date'' in the prefatory language of Section I are changed to correctly read ``the Conviction, as defined in Section II(e)'' and ``the Conviction Date, as defined in Section II(f).'' After giving full consideration to the record, the Department has decided to grant the temporary exemption, as described above. The complete application file (Application No. D-11859) is available for public inspection [[Page 94037]] in the Public Disclosure Room of the Employee Benefits Security Administration, Room N-1515, U.S. Department of Labor, 200 Constitution Avenue NW., Washington, DC 20210. For a more complete statement of the facts and representations supporting the Department's decision to grant this temporary exemption, refer to the notice of proposed temporary exemption published on November 21, 2016 at 81 FR 83350. Temporary Exemption Operative Language Section I: Covered Transactions Certain entities with specified relationships to Citigroup (hereinafter, the Citigroup Affiliated QPAMs and the Citigroup Related QPAMs, as defined in Sections II(a) and II(b), respectively) will not be precluded from relying on the exemptive relief provided by Prohibited Transaction Class Exemption 84-14 (PTE 84-14 or the QPAM Exemption),\5\ notwithstanding the judgment of conviction against Citicorp (the Conviction, as defined in Section II(e)),\6\ for a period of up to twelve months beginning on the date of the Conviction (the Conviction Date, as defined in Section II(f)), provided that the following conditions are satisfied: --------------------------------------------------------------------------- \5\ 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). \6\ Section I(g) of PTE 84-14 generally provides that ``[n]either the QPAM nor any affiliate thereof . . . nor any owner . . . of a 5 percent or more interest in the QPAM is a person who within the 10 years immediately preceding the transaction has been either convicted or released from imprisonment, whichever is later, as a result of'' certain felonies including violation of the Sherman Antitrust Act, Title 15 United States Code, Section 1. --------------------------------------------------------------------------- (a) Other than a single individual who worked for a non-fiduciary business within Citigroup's Markets and Securities Services Business, and who had no responsibility for, and exercised no authority in connection with, the management of plan assets, the Citigroup Affiliated QPAMs and the Citigroup Related QPAMs (including their officers, directors, agents other than Citicorp, and employees of such Citigroup QPAMs) did not know of, have reason to know of, or participate in the criminal conduct of Citicorp that is the subject of the Conviction; (b) Other than a single individual who worked for a non-fiduciary business within Citigroup's Markets and Securities Services Business, and who had no responsibility for, and exercised no authority in connection with, the management of plan assets, the Citigroup Affiliated QPAMs and the Citigroup Related QPAMs (including their officers, directors, agents other than Citicorp, and employees of such Citigroup Affiliated QPAMs), did not receive direct compensation, or knowingly receive indirect compensation in connection with the criminal conduct that is the subject of the Conviction; (c) The Citigroup Affiliated QPAMs will not employ or knowingly engage any of the individuals that participated in the criminal conduct that is the subject of the Conviction (for purposes of this paragraph (c), ``participated in'' includes approving or condoning the misconduct underlying the Conviction); (d) A Citigroup Affiliated QPAM will not use its authority or influence to direct an ``investment fund'' (as defined in Section VI(b) of PTE 84-14), that is subject to ERISA or the Code and managed by such Citigroup Affiliated QPAM, to enter into any transaction with Citicorp, or to engage Citicorp to provide any service to such investment fund, for a direct or indirect fee borne by such investment fund, regardless of whether such transaction or service may otherwise be within the scope of relief provided by an administrative or statutory exemption; (e) Any failure of a Citigroup Affiliated QPAM or a Citigroup Related QPAM to satisfy Section I(g) of PTE 84-14 arose solely from the Conviction; (f) A Citigroup Affiliated QPAM or a Citigroup Related QPAM did not exercise authority over the assets of any plan subject to Part 4 of Title I of ERISA (an ERISA-covered plan) or section 4975 of the Code (an IRA) in a manner that it knew or should have known would: further the criminal conduct that is the subject of the Conviction; or cause the Citigroup Affiliated QPAM or the Citigroup Related QPAM or its affiliates or related parties to directly or indirectly profit from the criminal conduct that is the subject of the Conviction; (g) Other than with respect to employee benefit plans maintained or sponsored for their own employees or the employees of an affiliate, Citicorp will not act as a fiduciary within the meaning of ERISA Section 3(21)(A)(i) or (iii), or Code Section 4975(e)(3)(A) or (C), with respect to ERISA-covered plan and IRA assets; in accordance with this provision, Citicorp 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 Section 4975(e)(3)(B) of the Code; (h)(1) Within six (6) months of the Conviction Date, each Citigroup Affiliated QPAM must develop, implement, maintain, and follow written policies and procedures (the Policies) requiring and reasonably designed to ensure that: (i) The asset management decisions of the Citigroup Affiliated QPAM are conducted independently of the corporate management and business activities of Citigroup; (ii) The Citigroup Affiliated QPAM fully complies with ERISA's fiduciary duties, and with ERISA and the Code's prohibited transaction provisions, and does not knowingly participate in any violations of these duties and provisions with respect to ERISA-covered plans and IRAs; (iii) The Citigroup Affiliated QPAM does not knowingly participate in any other person's violation of ERISA or the Code with respect to ERISA-covered plans and IRAs; (iv) Any filings or statements made by the Citigroup Affiliated QPAM to regulators, including but not limited to, the Department, the Department of the Treasury, the Department of Justice, and the Pension Benefit Guaranty Corporation, on behalf of ERISA-covered plans or IRAs, are materially accurate and complete, to the best of such QPAM's knowledge at that time; (v) The Citigroup Affiliated QPAM does not make material misrepresentations or omit material information in its communications with such regulators with respect to ERISA-covered plans or IRAs, or make material misrepresentations or omit material information in its communications with ERISA-covered plans and IRA clients; (vi) The Citigroup Affiliated QPAM complies with the terms of this temporary exemption; and (vii) Any violation of, or failure to comply with an item in subparagraphs (ii) through (vi), is corrected promptly upon discovery, and any such violation or compliance failure not promptly corrected is reported, upon discovering the failure to promptly correct, in writing, to appropriate corporate officers, the head of compliance, and the General Counsel (or their functional equivalent) of the relevant Citigroup Affiliated QPAM, and an appropriate fiduciary of any affected ERISA-covered plan or IRA, where such fiduciary is independent of Citigroup; however, with respect to any ERISA-covered plan or IRA sponsored by an ``affiliate'' (as defined in Section VI(d) of PTE 84- 14) of Citigroup or beneficially owned by an employee of Citigroup or its affiliates, such fiduciary does not need to be independent of Citigroup. A Citigroup Affiliated QPAM will not be treated as having failed to develop, implement, maintain, or follow the Policies, [[Page 94038]] provided that it corrects any instance of noncompliance promptly when discovered, or when it 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) Within six (6) months of the Conviction Date, each Citigroup Affiliated QPAM must develop and implement a program of training (the Training), conducted at least annually, for all relevant Citigroup Affiliated QPAM asset/portfolio management, trading, legal, compliance, and internal audit personnel. The Training must be set forth in the Policies and, 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 temporary exemption (including any loss of exemptive relief provided herein), and prompt reporting of wrongdoing; (i)(1) As of the effective date of this temporary exemption, with respect to any arrangement, agreement, or contract between a Citigroup Affiliated QPAM and an ERISA-covered plan or IRA for which a Citigroup Affiliated QPAM provides asset management or other discretionary fiduciary services, each Citigroup Affiliated QPAM agrees: (i) To comply with ERISA and the Code with respect to each such ERISA-covered plan and IRA, as applicable; to refrain from engaging in prohibited transactions that are not otherwise exempt (and to promptly correct any inadvertent prohibited transactions); and to comply with the standards of prudence and loyalty set forth in section 404 of ERISA, as applicable, with respect to each such ERISA-covered plan and IRA; (ii) Not to require (or otherwise cause) the ERISA covered plan or IRA to waive, limit, or qualify the liability of the Citigroup Affiliated QPAM for violating ERISA or the Code or engaging in prohibited transactions; (iii) Not to require the ERISA-covered plan or IRA (or sponsor of such ERISA-covered plan or beneficial owner of such IRA) to indemnify the Citigroup Affiliated QPAM for violating ERISA or the Code, or engaging in prohibited transactions, except for violations or prohibited transactions caused by an error, misrepresentation, or misconduct of a plan fiduciary or other party hired by the plan fiduciary, which is independent of Citigroup, and its affiliates; (iv) Not to restrict the ability of such ERISA-covered plan or IRA to terminate or withdraw from its arrangement with the Citigroup Affiliated QPAM with respect to any investment in a separately managed account or pooled fund subject to ERISA and managed by such QPAM, with the exception of reasonable restrictions, appropriately disclosed in advance, that are specifically designed to ensure equitable treatment of all investors in a pooled fund in the event such withdrawal or termination may have adverse consequences for all other investors. In connection with any such arrangements involving investments in pooled funds subject to ERISA entered into after the Conviction Date, the adverse consequences must relate to a lack of liquidity of the pooled fund's underlying assets, valuation issues, or regulatory reasons that prevent the fund from immediately redeeming an ERISA-covered plan's or IRA's investment, and such restrictions are applicable to all such investors and effective no longer than reasonably necessary to avoid the adverse consequences; (v) Not to impose any fee, penalty, or charge 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 each such fee is applied consistently and in like manner to all such investors; (vi) Not to include exculpatory provisions disclaiming or otherwise limiting liability of the Citigroup Affiliated QPAM for a violation of such agreement's terms, except for liability caused by an error, misrepresentation, or misconduct of a plan fiduciary or other party hired by the plan fiduciary which is independent of Citigroup, and its affiliates; and (vii) To indemnify and hold harmless the ERISA-covered plan or IRA for any damages resulting from a violation of ERISA's fiduciary duties and of ERISA and the Code's prohibited transaction provisions, a breach of contract, or any claim arising out of the failure of such Citigroup Affiliated QPAM to qualify for the exemptive relief provided by PTE 84- 14 as a result of a violation of Section I(g) of PTE 84-14 other than the Conviction; (2) Within six (6) months of the date of the Conviction, each Citigroup Affiliated QPAM will provide a notice of its agreement and obligations under this Section I(i) to each ERISA-covered plan and IRA for which a Citigroup Affiliated QPAM provides asset management or other discretionary fiduciary services; (j) The Citigroup Affiliated QPAMs must comply with each condition of PTE 84-14, as amended, with the sole exception of the violation of Section I(g) of PTE 84-14 that is attributable to the Conviction; (k) Each Citigroup Affiliated QPAM will maintain records necessary to demonstrate that the conditions of this temporary exemption have been met, for six (6) years following the date of any transaction for which such Citigroup Affiliated QPAM relies upon the relief in the temporary exemption; (l) During the effective period of this temporary exemption, Citigroup: (1) Immediately discloses to the Department any Deferred Prosecution Agreement (a DPA) or Non-Prosecution Agreement (an NPA) that Citigroup or an affiliate enters into with the U.S. Department of Justice to the extent such DPA or NPA involves conduct described in Section I(g) of PTE 84-14 or section 411 of ERISA; and (2) Immediately provides the Department any information requested by the Department, as permitted by law, regarding the agreement and/or the conduct and allegations that led to the agreement; and (m) A Citigroup Affiliated QPAM or a Citigroup Related QPAM will not fail to meet the terms of this temporary exemption solely because a different Citigroup Affiliated QPAM or Citigroup Related QPAM fails to satisfy a condition for relief under this temporary exemption, described in Sections I(c), (d), (h), (i), (j), and (k). Section II: Definitions (a) The term ``Citigroup Affiliated QPAM'' means a ``qualified professional asset manager'' (as defined in section VI(a) \7\ of PTE 84-14) that relies on the relief provided by PTE 84-14 and with respect to which Citigroup is a current or future ``affiliate'' (as defined in section VI(d)(1) of PTE 84-14). The term ``Citigroup Affiliated QPAM'' excludes Citicorp; --------------------------------------------------------------------------- \7\ In general terms, a QPAM is an independent fiduciary that is a bank, savings and loan association, insurance company, or investment adviser that meets certain equity or net worth requirements and other licensure requirements, and has acknowledged in a written management agreement that it is a fiduciary with respect to each plan that has retained the QPAM. --------------------------------------------------------------------------- (b) The term ``Citigroup Related QPAM'' means any current or future ``qualified professional asset manager'' [[Page 94039]] (as defined in section VI(a) of PTE 84-14) that relies on the relief provided by PTE 84-14, and with respect to which Citigroup owns a direct or indirect five percent or more interest, but with respect to which Citigroup is not an ``affiliate'' (as defined in Section VI(d)(1) of PTE 84-14); (c) The terms ``ERISA-covered plan'' and ``IRA'' mean, respectively, a plan subject to Part 4 of Title I of ERISA and a plan subject to section 4975 of the Code; (d) The term ``Citigroup'' means Citigroup, Inc., the parent entity, and does not include any subsidiaries or other affiliates; (e) The term ``Conviction'' means the judgment of conviction against Citicorp for violation of the Sherman Antitrust Act, 15 U.S.C. 1, which is scheduled to be entered in the District Court for the District of Connecticut (the District Court) (Case Number 3:15-cr-78- SRU). For all purposes under this exemption, ``conduct'' of any person or entity that is the ``subject of [a] Conviction'' encompasses the conduct described in Paragraph 4(g)-(i) of the Plea Agreement filed in the District Court in Case Number 3:15-cr-78-SRU; (f) The term ``Conviction Date'' means the date that a judgment of Conviction against Citicorp is entered by the District Court in connection with the Conviction; and (g) The term ``Citicorp'' means Citicorp, a financial services holding company organized and existing under the laws of Delaware and does not include any subsidiaries or other affiliates. Effective Date: This temporary exemption is effective for the period beginning on the Conviction Date until the earlier of: (1) The date that is twelve (12) months following the Conviction Date; or (2) the effective date of final agency action made by the Department in connection with an application for long-term exemptive relief for the covered transactions described herein. FOR FURTHER INFORMATION CONTACT: Mr. Joseph Brennan of the Department, telephone (202) 693-8456. (This is not a toll-free number.) JPMorgan Chase & Co. (JPMC or the Applicant) Located in New York, New York [Prohibited Transaction Exemption 2016-15; Exemption Application No. D- 11861] Temporary Exemption On November 21, 2016, the Department of Labor (the Department) published a notice of proposed temporary exemption in the Federal Register at 81 FR 83357, proposing that certain entities with specified relationships to JPMC could continue to rely upon the relief provided by PTE 84-14 (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), notwithstanding the Conviction for a period of up to twelve (12) months beginning on the Conviction Date. The Department is today granting this temporary exemption in order to protect ERISA-covered plans and IRAs from certain costs and/or investment losses that may arise to the extent entities with a corporate relationship to JPMC lose their ability to rely on PTE 84-14 as of the Conviction Date, as described in the proposed temporary exemption. The Department has proposed longer-term relief for the JPMC Affiliated QPAMs and the JPMC Related QPAMs to rely on PTE 84-14 notwithstanding the Conviction. The relief in this temporary exemption provides the Department more time to consider whether longer-term relief is warranted. No relief from a violation of any other law is provided by this temporary exemption, including any criminal conviction described in the proposed temporary exemption. Furthermore, the Department cautions that the relief in this temporary exemption will terminate immediately if, among other things, an entity within the JPMC corporate structure is convicted of a crime described in Section I(g) of PTE 84-14 (other than the Conviction) during the effective period of the temporary exemption. While such an entity could apply for a new exemption in that circumstance, the Department would not be obligated to grant the exemption. The terms of this temporary exemption have been specifically designed to permit plans to terminate their relationships in an orderly and cost effective fashion in the event of an additional conviction or a determination that it is otherwise prudent for a plan to terminate its relationship with an entity covered by the temporary exemption. Written Comments The Department invited all interested persons to submit written comments and/or requests for a public hearing with respect to the notice of proposed temporary exemption, published in the Federal Register at 81 FR 83357 on November 21, 2016. All comments and requests for a hearing were due by November 28, 2016. The Department received written comments from the Applicant, the substance of which is discussed below. During the comment period, the Applicant submitted a request for the Department to make a number of revisions to the proposed exemption. Thereafter, the Applicant submitted additional information in support of its request. After considering these submissions, the Department has determined to make certain of the revisions sought by the Applicant. The revisions declined by the Department, as well as the revisions described below, will be reconsidered for purposes of the longer term relief published in the Federal Register on November 21, 2016 (81 FR 83372), in connection with Exemption Application Number D-11906. Revision 1. Deletion of Reference to Investment Banking Division of JPMorgan Chase Bank in Section I(d) of the Proposed Exemption Section I(d) of the proposed temporary exemption provides that ``[a] JPMC Affiliated QPAM will not use its authority or influence to direct an ``investment fund'' (as defined in Section VI(b) of PTE 84- 14), that is subject to ERISA or the Code and managed by such JPMC Affiliated QPAM, to enter into any transaction with JPMC or the Investment Banking Division of JPMorgan Chase Bank, or engage JPMC or the Investment Banking Division of JPMorgan Chase Bank to provide any service to such investment fund, for a direct or indirect fee borne by such investment fund, regardless of whether such transaction or service may otherwise be within the scope of relief provided by an administrative or statutory exemption[.]'' The Applicant requests that the Department modify this condition. The Applicant represents that, as of the date of the exemption application, JPMC Affiliated QPAMs managed approximately $100 billion in plan assets through collective investment trusts that use the custody and administration services of JPMC's Corporate and Investment Banking line of business (CIB), operating through JPMorgan Chase Bank. Similarly, the Applicant explains that certain plans managed by JPMC Affiliated QPAMs through separate accounts have independently selected CIB (operating through JPMorgan Chase Bank) as their trustee and/or custodian, and transactions directed by JPMC Affiliated QPAMs on behalf of such plans would necessarily require the trustee/custodian to provide services for a direct or indirect fee. According to the Applicant, the wording of this proposed condition is tantamount to a denial, because of all of [[Page 94040]] the services CIB provides to client accounts. The Applicant states that the custody and administration services provided are fundamental to the operation of the investment funds it manages. The proposed condition would make it impossible for JPMorgan Chase Bank's collective investment trusts to function, or for plans managed by a JPMC Affiliated QPAM to select JPMorgan Chase Bank as their trustee or custodian. The Department concurs with this comment, and has revised this condition, accordingly. Revision 2. Deletion of Reference to the Investment Banking Division of JPMorgan Chase Bank in Section I(g) of the Proposed Exemption Section I(g) of the proposed temporary exemption provides that ``JPMC and the Investment Banking Division of JPMorgan Chase Bank will not provide discretionary asset management services to ERISA-covered plans or IRAs, and will not otherwise act as a fiduciary with respect to ERISA-covered plan and IRA assets[.]'' The Applicant represents that the CIB, operating through JPMorgan Chase Bank, manages over $7 billion of cash collateral for plans within its securities lending agent business in reliance on PTE 84-14. If JPMorgan Chase Bank cannot continue to provide these fiduciary services, the Applicant explains that the exemption would provide no relief for plans that use the Bank as a securities lending agent. The Department concurs with this comment, and has revised the condition in this final temporary exemption. Therefore, Section I(g) of the final exemption provides that ``JPMC will not act as a fiduciary within the meaning of ERISA Section 3(21)(A)(i) or (iii), or Code Section 4975(e)(3)(A) or (C), with respect to ERISA-covered plan and IRA assets; in accordance with this provision, JPMC will not be treated as violating the conditions of this exemption solely because it acted an investment advice fiduciary within the meaning of ERISA Section 3(21)(A)(ii) or Section 4975(e)(3)(B) of the Code.'' The condition is also being revised to allow JPMC to act as a fiduciary with respect to employee benefit plans maintained or sponsored for their own employees or the employees of an affiliate. Revision 3. Deletion of Reference to the Investment Banking Division of JPMorgan Chase Bank in Section I(h) of the Proposed Exemption Section I(h)(1)(i) provides that ``[w]ithin four (4) months of the Conviction, each JPMC Affiliated QPAM must develop, implement, maintain, and follow written policies and procedures (the Policies) requiring and reasonably designed to ensure that: (i) [T]he asset management decisions of the JPMC Affiliated QPAM are conducted independently of the corporate management and business activities of JPMC, including the Investment Banking Division of JPMorgan Chase Bank[.]'' In its comment and in subsequent communications with the Department, the Applicant requests that Sections I(h)(1) and (2) be modified to allow the JPMC Affiliated QPAMs a period of up to six months following the Conviction to meet these requirements. The Department concurs with the Applicant's request. Therefore, in the final temporary exemption, the Department has modified Section I(h)(1) and (2) to provide that, respectively, ``Within six (6) months of the Conviction, each JPMC Affiliated QPAM must develop, implement, maintain, and follow written policies and procedures (the Policies) . . .'' and ``Within six (6) months of the Conviction, each JPMC Affiliated QPAM must develop and implement a program of training (the Training). . . .'' The Applicant also seeks deletion of the condition's reference to the Investment Banking Division of JPMorgan Chase Bank for the reasons stated above. The Department concurs with this comment, and has revised the condition, accordingly. Revision 4. References to the Conviction The prefatory language of Section I of the proposed temporary exemption provides that ``the JPMC Affiliated QPAMs and the JPMC Related QPAMs, as defined in Sections II(a) and II(b), respectively, will not be precluded from relying on the exemptive relief provided by Prohibited Transaction Class Exemption 84-14 (PTE 84-14 or the QPAM Exemption), notwithstanding the judgment of conviction against JPMC (the Conviction), as defined in Section II(c)), for engaging in a conspiracy to: (1) Fix the price of, or (2) eliminate competition in the purchase or sale of the euro/U.S. dollar currency pair exchanged in the Foreign Exchange (FX) Spot Market.'' Furthermore, Section II(e) of the proposed temporary exemption provides that, in relevant part, ``[t]he term 'Conviction' means the judgment of conviction against JPMC for violation of the Sherman Antitrust Act, 15 U.S.C. 1, which is scheduled to be entered in the District Court for the District of Connecticut (the District Court)(Case Number 3:15-cr-79-SRU), in connection with JPMC, through one of its euro/U.S. dollar (EUR/USD) traders, entering into and engaging in a combination and conspiracy to fix, stabilize, maintain, increase or decrease the price of, and rig bids and offers for, the EUR/USD currency pair exchanged in the FX spot market by agreeing to eliminate competition in the purchase and sale of the EUR/USD currency pair in the United States and elsewhere. For all purposes under this temporary exemption, if granted, ``conduct'' of any person or entity that is the ``subject of [a] Conviction'' encompasses any conduct of JPMC and/or their personnel, that is described in the Plea Agreement, (including the Factual Statement), and other official regulatory or judicial factual findings that are a part of this record[.]'' The Applicant requests that the Department modify the prefatory language in Section I and Section II(e) of the proposed temporary exemption, to more precisely define the term ``Conviction'' and narrow the scope of activity that is considered to be the ``conduct'' of a person or entity that is the subject of a Conviction. According to the Applicant, the reference to Conviction in the prefatory language of Section I of the proposed temporary exemption contains inaccurate and editorial language and may be confusing for plans and their counterparties. Furthermore, the Applicant states that the proposed definition of Conviction in Section II(e) is also inaccurate and contains an overly broad definition of the ``conduct'' that is subject to the Conviction. In this regard, the Applicant states that the language in Section II(e) expands the ``conduct'' that is considered the subject of the Conviction beyond that which is described as criminal in the Plea Agreement, and the reference to ``other official regulatory or judicial factual findings that are a part of this record'' is vague and could potentially refer to findings by regulators or in civil proceedings involving the Applicant and disclosed to the Department. The Department concurs with the Applicant's comment and has modified the language in the final temporary exemption to provide that ``[t]he term `Conviction' means the judgment of conviction against JPMC for violation of the Sherman Antitrust Act, 15 U.S.C. 1, which is scheduled to be entered in the District Court for the District of Connecticut (the District Court)(Case Number 3:15-cr-79-SRU). For all purposes under this exemption, ``conduct'' of any person or entity that is the ``subject of [a] Conviction'' encompasses the conduct described in [[Page 94041]] Paragraph 4(g)-(i) of the Plea Agreement filed in the District Court in Case Number 3:15-cr-79-SRU.'' Furthermore, the Department deleted the parenthetical in paragraph (a) regarding the term ``participate in'' and reworded the ``participate in'' parenthetical in paragraph (c) to read: ``(For purposes of this paragraph (c), ``participated in'' includes approving or condoning the misconduct underlying the Conviction).'' Revision 5. The Policies and Training in Section I(h) Section I(h)(1) of the proposed temporary exemption requires each JPMC Affiliated QPAM to ``develop, implement, maintain and follow'' the written policies and procedures (the Policies) described in Section I(h)(1)(i) through (vii). Furthermore, Section I(h)(2) requires each JPMC Affiliated QPAM to develop and implement a program of training (the Training)'' described therein. In its comment and in subsequent conversations with the Department, the Applicant requested that Sections I(h)(1) and (2) be modified to allow the JPMC Affiliated QPAMs a period of up to six (6) months following the date of the Conviction to meet these requirements. The Department concurs with the Applicant's request. Therefore, in the final temporary exemption, the Department has modified Section I(h)(1) and (2) to provide that, respectively, ''Within six (6) months of the Conviction Date, each JPMC Affiliated QPAM must develop, implement, maintain, and follow written policies and procedures (the Policies) . . .'' and ''Within six (6) months of the Conviction Date, each JPMC Affiliated QPAM must develop and implement a program of training (the Training). . . .'' Revision 6. Indemnification Provision in Section I(i) Section I(i)(1) of the proposed temporary exemption provides that ``[e]ffective as of the effective date of this temporary exemption, with respect to any arrangement, agreement, or contract between a JPMC Affiliated QPAM and an ERISA-covered plan or IRA for which a JPMC Affiliated QPAM provides asset management or other discretionary fiduciary services, each JPMC Affiliated QPAM agrees: . . . ``(vii) [t]o indemnify and hold harmless the ERISA-covered plan or IRA for any damages resulting from a violation of applicable laws, a breach of contract, or any claim arising out of the failure of such JPMC Affiliated QPAM to qualify for the exemptive relief provided by PTE 84- 14 as a result of a violation of Section I(g) of PTE 84-14 other than the Conviction[.]'' The Applicant requested that the Department modify the language of Sections I(i)(1) and I(i)(1)(vii) in order to narrow the scope of the contractual obligations in two respects. First, the Applicant requested that the contractual obligations described in Section I(i) apply only with respect to any arrangement, agreement, or contract between a JPMC Affiliated QPAM and an ERISA-covered plan or IRA under which the JPMC Affiliated QPAM provides asset management or other discretionary fiduciary services in reliance on PTE 84-14. The Department declines to make this revision. Often, parties enter into arrangements with financial institutions in reliance on their QPAM status, irrespective of whether PTE 84-14 is strictly needed or in circumstances where more than one exemption may be available. The broad applicability of the conditions of Section I(i) ensures that the parties' reliance is not misplaced; avoids needless disputes over the particular exemption relied upon by the QPAMs; and encourages a broad culture of compliance and accountability at the QPAMs, consistent with the rightful expectations of plans and IRAs that engage in transactions with QPAMs. A broad application of Section I(i) is in the interest of ERISA-covered plans and IRAs and protective of their rights. The JPMC Affiliated QPAMs should be held to a high standard of integrity with respect to all ERISA-covered plans and IRAs, and not just those with respect to which it relies on PTE 84-14. Secondly, the Applicant requested that Section I(i)(1)(vii) be deleted, or alternatively, that the Department tie the provision to damages with a proximate causal connection to relevant conduct of the asset manager. The Applicant represents that the indemnification and hold harmless requirement in subparagraph (vii) would operate in an unfair manner because it is not limited to clients who are harmed through a direct, causal link to the loss of exemptive relief provided by PTE 84-14. According to the Applicant, the provision appears to allow ERISA-covered plans and IRAs to seek to recover damages: (a) That arise from violations and breaches by third parties, (b) that arise only tenuously from the manager's conduct, (c) that may be grossly unreasonable in amount, (d) for claims without merit, and (e) for claims in connection with accounts that do not rely on PTE 84-14. The Department declines to make the requested revision, but agrees to modify the section to make it clear that the ``applicable laws'' referred to in Section I(i)(1)(vii) pertain to the fiduciary duties of ERISA and the prohibited transaction provisions of ERISA and the Code. The requirement to comply with ERISA's fiduciary duties and with ERISA and the Code's prohibited transaction provisions is included in the Policies required under the exemption. Therefore, Section I(i)(1)(vii) of the temporary exemption, as granted, requires a JPMC Affiliated QPAM ``[t]o indemnify and hold harmless the ERISA-covered plan or IRA for any damages resulting from a violation of ERISA's fiduciary duties and of ERISA and the Code's prohibited transaction provisions, a breach of contract, or any claim arising out of the failure of such JPMC Affiliated QPAM to qualify for the exemptive relief provided by PTE 84- 14 as a result of a violation of Section I(g) of PTE 84-14 other than the Conviction.'' Revision 7. Restrictions on Withdrawals in Section I(i) Section I(i)(1)(4) of the proposed temporary exemption requires that the JPMC Affiliated QPAMs must agree ``[n]ot to restrict the ability of such ERISA-covered plan or IRA to terminate or withdraw from its arrangement with the JPMC Affiliated QPAM (including 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 as a result of the actual lack of liquidity of the underlying assets, provided that such restrictions are applied consistently and in like manner to all such investors.'' The Department has modified Section I(i)(4) to make it clear that a lack of liquidity may include a range of similar circumstances where reasonable restrictions are necessary to protect remaining investors in a pooled fund. Furthermore, the Department has modified Section I(i)(4) in order to clarify that the limitation of adverse consequences to those resulting from a lack of liquidity, valuation issues, or regulatory reasons, is only required with respect to investments in a pooled fund subject to ERISA entered into after the Conviction Date. In any such event, the restrictions must be reasonable and last no longer than reasonably necessary to avoid the adverse consequences to investors in the fund. [[Page 94042]] Revision 8. Scope of Contractual Obligations in Section I(i) The Department is revising the notice requirement in Section I(i)(2) to require that each JPMC Affiliated QPAM will provide a notice of its agreement to each ERISA-covered plan and IRA for which a JPMC Affiliated QPAM provides asset management or other discretionary fiduciary services, and to provide that such notice must be completed within six (6) months of the effective date of this temporary exemption. Revision 9. Definition of ``JPMC Affiliated QPAM'' in Section II(a) Section II(a) of the proposed temporary exemption precludes JPMC, the parent entity, from acting as a QPAM. The last sentence of this condition also erroneously states that JPMC is the ``division'' [that was] directly implicated by the conduct that is the subject of the Conviction.'' The Applicant represents that JPMC is not a ``division,'' but the parent company of an affiliated group. In response to this comment, the Department is removing this reference. Revision 10. Revision of Section I(b) of the Proposed Exemption The applicant represents that Section I(b) of the proposed exemption is not workable, as an individual can only receive compensation if the entity he works for receives compensation. The Department has revised this condition to read, ``The JPMC Affiliated QPAMs and the JPMC Related QPAMs (including their officers, directors, agents other than JPMC, and employees of such JPMC QPAMs) did not receive direct compensation, or knowingly receive indirect compensation in connection with the criminal conduct that is the subject of the Conviction, other than a non-fiduciary line of business within JPMorgan Chase Bank.''. After giving full consideration to the record, the Department has decided to grant the temporary exemption, as described above. The complete application file (Application No. D-11861) is available for public inspection in the Public Disclosure Room of the Employee Benefits Security Administration, Room N-1515, U.S. Department of Labor, 200 Constitution Avenue NW., Washington, DC 20210. For a more complete statement of the facts and representations supporting the Department's decision to grant this temporary exemption, refer to the notice of proposed temporary exemption published on November 21, 2016 at 81 FR 83357. Temporary Exemption Operative Language Section I: Covered Transactions Certain entities with specified relationships to JPMC (hereinafter, the JPMC Affiliated QPAMs and the JPMC Related QPAMs, as defined in Sections II(a) and II(b), respectively) will not be precluded from relying on the exemptive relief provided by Prohibited Transaction Class Exemption 84-14 (PTE 84-14 or the QPAM Exemption),\8\ notwithstanding the judgment of conviction against JPMC (the Conviction, as defined in Section II(e)),\9\ for a period of up to twelve (12) months beginning on the date of the Conviction (the Conviction Date, as defined in Section II(f)), provided that the following conditions are satisfied: --------------------------------------------------------------------------- \8\ 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). \9\ Section I(g) of PTE 84-14 generally provides that ``[n]either the QPAM nor any affiliate thereof . . . nor any owner . . . of a 5 percent or more interest in the QPAM is a person who within the 10 years immediately preceding the transaction has been either convicted or released from imprisonment, whichever is later, as a result of'' certain felonies including violation of the Sherman Antitrust Act, Title 15 United States Code, Section 1. --------------------------------------------------------------------------- (a) Other than a single individual who worked for a non-fiduciary business within JPMorgan Chase Bank and who had no responsibility for, and exercised no authority in connection with, the management of plan assets, the JPMC Affiliated QPAMs and the JPMC Related QPAMs (including their officers, directors, agents other than JPMC, and employees of such JPMC QPAMs) did not know of, have reason to know of, or participate in the criminal conduct of JPMC that is the subject of the Conviction; (b) The JPMC Affiliated QPAMs and the JPMC Related QPAMs (including their officers, directors, agents other than JPMC, and employees of such JPMC QPAMs) did not receive direct compensation, or knowingly receive indirect compensation in connection with the criminal conduct that is the subject of the Conviction, other than a non-fiduciary line of business within JPMorgan Chase Bank; (c) The JPMC Affiliated QPAMs will not employ or knowingly engage any of the individuals that participated in the criminal conduct that is the subject of the Conviction (for purposes of this paragraph (c), ``participated in'' includes approving or condoning the misconduct underlying the Conviction); (d) A JPMC Affiliated QPAM will not use its authority or influence to direct an ``investment fund'' (as defined in Section VI(b) of PTE 84-14), that is subject to ERISA or the Code and managed by such JPMC Affiliated QPAM, to enter into any transaction with JPMC, or to engage JPMC to provide any service to such investment fund, for a direct or indirect fee borne by such investment fund, regardless of whether such transaction or service may otherwise be within the scope of relief provided by an administrative or statutory exemption; (e) Any failure of a JPMC Affiliated QPAM or a JPMC Related QPAM to satisfy Section I(g) of PTE 84-14 arose solely from the Conviction; (f) A JPMC Affiliated QPAM or a JPMC Related QPAM did not exercise authority over the assets of any plan subject to Part 4 of Title I of ERISA (an ERISA-covered plan) or section 4975 of the Code (an IRA) in a manner that it knew or should have known would: Further the criminal conduct that is the subject of the Conviction; or cause the JPMC Affiliated QPAM the JPMC Related QPAM or its affiliates or related parties to directly or indirectly profit from the criminal conduct that is the subject of the Conviction; (g) Other than with respect to employee benefit plans maintained or sponsored for their own employees or the employees of an affiliate, JPMC will not act as a fiduciary within the meaning of section 3(21)(A)(i) or (iii) of ERISA, or section 4975(e)(3)(A) and (C) of the Code, with respect to ERISA-covered plan and IRA assets; in accordance with this provision, JPMC will not be treated as violating the conditions of this exemption solely because it acted as an investment advice fiduciary within the meaning of section 3(21)(A)(ii) or section 4975(e)(3)(B) of the Code; (h)(1) Within six (6) months of the Conviction Date, each JPMC Affiliated QPAM must develop, implement, maintain, and follow written policies and procedures (the Policies) requiring and reasonably designed to ensure that: (i) The asset management decisions of the JPMC Affiliated QPAM are conducted independently of the corporate management and business activities of JPMC; (ii) The JPMC Affiliated QPAM fully complies with ERISA's fiduciary duties, and with ERISA and the Code's prohibited transaction provisions, and does not knowingly participate in any violations of these duties and provisions with respect to ERISA-covered plans and IRAs; (iii) The JPMC Affiliated QPAM does not knowingly participate in any other person's violation of ERISA or the Code [[Page 94043]] with respect to ERISA-covered plans and IRAs; (iv) Any filings or statements made by the JPMC Affiliated QPAM to regulators, including but not limited to, the Department, the Department of the Treasury, the Department of Justice, and the Pension Benefit Guaranty Corporation, on behalf of ERISA-covered plans or IRAs, are materially accurate and complete, to the best of such QPAM's knowledge at that time; (v) The JPMC Affiliated QPAM does not make material misrepresentations or omit material information in its communications with such regulators with respect to ERISA-covered plans or IRAs, or make material misrepresentations or omit material information in its communications with ERISA-covered plans and IRA clients; (vi) The JPMC Affiliated QPAM complies with the terms of this temporary exemption; and (vii) Any violation of, or failure to comply with an item in subparagraphs (ii) through (vi), is corrected promptly upon discovery, and any such violation or compliance failure not promptly corrected is reported, upon discovering the failure to promptly correct, in writing, to appropriate corporate officers, the head of compliance, and the General Counsel (or their functional equivalent) of the relevant JPMC Affiliated QPAM, and an appropriate fiduciary of any affected ERISA- covered plan or IRA, where such fiduciary is independent of JPMC; however, with respect to any ERISA-covered plan or IRA sponsored by an ``affiliate'' (as defined in Section VI(d) of PTE 84-14) of JPMC or beneficially owned by an employee of JPMC or its affiliates, such fiduciary does not need to be independent of JPMC. A JPMC Affiliated QPAM will not be treated as having failed to develop, implement, maintain, or follow the Policies, provided that it corrects any instance of noncompliance promptly when discovered, or when it 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) Within six (6) months of the Conviction Date, each JPMC Affiliated QPAM must develop and implement a program of training (the Training), conducted at least annually, for all relevant JPMC Affiliated QPAM asset/portfolio management, trading, legal, compliance, and internal audit personnel. The Training must be set forth in the Policies and, 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 temporary exemption (including any loss of exemptive relief provided herein), and prompt reporting of wrongdoing; (i)(1) As of the effective date of this temporary exemption, with respect to any arrangement, agreement, or contract between a JPMC Affiliated QPAM and an ERISA-covered plan or IRA for which a JPMC Affiliated QPAM provides asset management or other discretionary fiduciary services, each JPMC Affiliated QPAM agrees: (i) To comply with ERISA and the Code with respect to each such ERISA-covered plan and IRA, as applicable; to refrain from engaging in prohibited transactions that are not otherwise exempt (and to promptly correct any inadvertent prohibited transactions); and to comply with the standards of prudence and loyalty set forth in section 404 of ERISA, as applicable, with respect to each such ERISA-covered plan and IRA; (ii) Not to require (or otherwise cause) the ERISA covered plan or IRA to waive, limit, or qualify the liability of the JPMC Affiliated QPAM for violating ERISA or the Code or engaging in prohibited transactions; (iii) Not to require the ERISA-covered plan or IRA (or sponsor of such ERISA-covered plan or beneficial owner of such IRA) to indemnify the JPMC Affiliated QPAM for violating ERISA or the Code, or engaging in prohibited transactions, except for violations or prohibited transactions caused by an error, misrepresentation, or misconduct of a plan fiduciary or other party hired by the plan fiduciary, which is independent of JPMC and its affiliates; (iv) Not to restrict the ability of such ERISA-covered plan or IRA to terminate or withdraw from its arrangement with the JPMC Affiliated QPAM with respect to any investment in a separately managed account or pooled fund subject to ERISA and managed by such QPAM, with the exception of reasonable restrictions, appropriately disclosed in advance, that are specifically designed to ensure equitable treatment of all investors in a pooled fund in the event such withdrawal or termination may have adverse consequences for all other investors. In connection with any such arrangements involving investments in pooled funds subject to ERISA entered into after the Conviction Date, the adverse consequences must relate to a lack of liquidity of the pooled fund's underlying assets, valuation issues, or regulatory reasons that prevent the fund from immediately redeeming an ERISA-covered plan's or IRA's investment, and such restrictions are applicable to all such investors and effective no longer than reasonably necessary to avoid the adverse consequences; (v) Not to impose any fee, penalty, or charge 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 each such fee is applied consistently and in like manner to all such investors; (vi) Not to include exculpatory provisions disclaiming or otherwise limiting liability of the JPMC Affiliated QPAM for a violation of such agreement's terms, except for liability caused by an error, misrepresentation, or misconduct of a plan fiduciary or other party hired by the plan fiduciary which is independent of JPMC, and its affiliates; and (vii) To indemnify and hold harmless the ERISA-covered plan or IRA for any damages resulting from a violation of ERISA's fiduciary duties and of ERISA and the Code's prohibited transaction provisions, a breach of contract, or any claim arising out of the failure of such JPMC Affiliated QPAM to qualify for the exemptive relief provided by PTE 84- 14 as a result of a violation of Section I(g) of PTE 84-14 other than the Conviction; (2) Within six (6) months of the date of the Conviction, each JPMC Affiliated QPAM will provide a notice of its agreement and obligations under this Section I(i) to each ERISA-covered plan and IRA for which a JPMC Affiliated QPAM provides asset management or other discretionary fiduciary services; (j) The JPMC Affiliated QPAMs must comply with each condition of PTE 84-14, as amended, with the sole exception of the violation of Section I(g) of PTE 84-14 that is attributable to the Conviction; (k) Each JPMC Affiliated QPAM will maintain records necessary to demonstrate that the conditions of this temporary exemption have been met, for six (6) years following the date of any transaction for which such JPMC Affiliated QPAM relies upon the relief in the temporary exemption; (l) During the effective period of this temporary exemption, JPMC: (1) Immediately discloses to the Department any Deferred Prosecution Agreement (a DPA) or Non-Prosecution Agreement (an NPA) that JPMC or an affiliate enters into with the U.S. [[Page 94044]] Department of Justice to the extent such DPA or NPA involves conduct described in Section I(g) of PTE 84-14 or section 411 of ERISA; and (2) Immediately provides the Department any information requested by the Department, as permitted by law, regarding the agreement and/or the conduct and allegations that led to the agreement; and (m) A JPMC Affiliated QPAM or a JPMC Related QPAM will not fail to meet the terms of this temporary exemption solely because a different JPMC Affiliated QPAM or JPMC Related QPAM fails to satisfy a condition for relief under this temporary exemption, described in Sections I(c), (d), (h), (i), (j), and (k). Section II: Definitions (a) The term ``JPMC Affiliated QPAM'' means a ``qualified professional asset manager'' (as defined in Section VI(a) \10\ of PTE 84-14) that relies on the relief provided by PTE 84-14 and with respect to which JPMC is a current or future ``affiliate'' (as defined in Section VI(d)(1) of PTE 84-14). The term ``JPMC Affiliated QPAM'' excludes JPMC; --------------------------------------------------------------------------- \10\ In general terms, a QPAM is an independent fiduciary that is a bank, savings and loan association, insurance company, or investment adviser that meets certain equity or net worth requirements and other licensure requirements, and has acknowledged in a written management agreement that it is a fiduciary with respect to each plan that has retained the QPAM. --------------------------------------------------------------------------- (b) The term ``JPMC Related QPAM'' means any current or future ``qualified professional asset manager'' (as defined in section VI(a) of PTE 84-14) that relies on the relief provided by PTE 84-14, and with respect to which JPMC owns a direct or indirect five percent or more interest, but with respect to which JPMC is not an ``affiliate'' (as defined in Section VI(d)(1) of PTE 84-14). (c) The terms ``ERISA-covered plan'' and ``IRA'' mean, respectively, a plan subject to Part 4 of Title I of ERISA and a plan subject to section 4975 of the Code; (d) The term ``JPMC'' means JPMorgan Chase and Co., the parent entity, and does not include any subsidiaries or other affiliates; (e) The term ``Conviction'' means the judgment of conviction against JPMC for violation of the Sherman Antitrust Act, 15 U.S.C. 1, which is scheduled to be entered in the District Court for the District of Connecticut (the District Court) (Case Number 3:15-cr-79-SRU). For all purposes under this exemption, ``conduct'' of any person or entity that is the ``subject of [a] Conviction'' encompasses the conduct described in Paragraph 4(g)-(i) of the Plea Agreement filed in the District Court in Case Number 3:15-cr-79-SRU; and (f) The term ``Conviction Date'' means the date that a judgment of Conviction against JPMC is entered by the District Court in connection with the Conviction. Effective Date: This temporary exemption is effective for the period beginning on the Conviction Date until the earlier of: (1) The date that is twelve (12) months following the Conviction Date; or (2) the effective date of final agency action made by the Department in connection with an application for long-term exemptive relief for the covered transactions described herein. FOR FURTHER INFORMATION CONTACT: Mr. Joseph Brennan of the Department, telephone (202) 693-8456. (This is not a toll-free number.) Barclays Capital Inc. (BCI or the Applicant) Located in New York, New York [Prohibited Transaction Exemption 2016-16; Exemption Application No. D- 11862] Temporary Exemption On November 21, 2016, the Department of Labor (the Department) published a notice of proposed temporary exemption in the Federal Register at 81 FR 83365, proposing that certain entities with specified relationships to BCI could continue to rely upon the relief provided by PTE 84-14 (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), notwithstanding the Conviction for a period of up to twelve months beginning on the date of the Conviction. No relief from a violation of any other law is provided by this temporary exemption, including any criminal conviction described in the proposed temporary exemption. Furthermore, the Department cautions that the relief in this temporary exemption will terminate immediately if, among other things, an entity within the BPLC corporate structure is convicted of a crime described in Section I(g) of PTE 84-14 (other than the Conviction) during the effective period of the temporary exemption. While such an entity could apply for a new exemption in that circumstance, the Department would not be obligated to grant the exemption. The terms of this temporary exemption have been specifically designed to permit plans to terminate their relationships in an orderly and cost effective fashion in the event of an additional conviction or a determination that it is otherwise prudent for a plan to terminate its relationship with an entity covered by the temporary exemption. Written Comments The Department invited all interested persons to submit written comments and/or requests for a public hearing with respect to the notice of proposed temporary exemption, published in the Federal Register on November 21, 2016. All comments and requests for a hearing were due by November 28, 2016. The Department received written comments from the Applicant, the substance of which is discussed below. During the comment period, the Applicant submitted a request for the Department to make a number of revisions to the proposed exemption. Thereafter, the Applicant submitted additional information in support of its request. After considering these submissions, the Department has determined to make certain of the revisions sought by the Applicant. The revisions declined by the Department, as well as the revisions described below, will be reconsidered for purposes of the longer term relief published in the Federal Register on November 21, 2016 (81 FR 83427) in connection with Exemption Application Number D-11910. Revision 1. Replacement of Reference to BCI With BPLC in Section I of the Proposed Exemption The Applicant states that BCI is identified in certain conditions in Section I, notwithstanding that BPLC is the entity that pled guilty to the felony. Accordingly, the Applicant requests removal of the reference to ``BCI'' in those conditions. The Department concurs with this comment, and has substituted BPLC, the entity convicted of the conduct underlying the Conviction, for BCI, where applicable in Section I of the exemption. The Department has also revised Section I(a) to include ``Barclays Related QPAMs,'' thus requiring that these QPAMs did not know of, have reason to know of, or participate in the criminal conduct of BPLC that is the subject of the Conviction. Revision 2. Correction to Section I(f) of the Proposed Exemption Section I(f) contains an unintended error and is revised to read as follows: ``A Barclays Affiliated QPAM or a Barclays Related QPAM did not exercise authority over the assets of any plan subject to Part 4 of Title I of ERISA (an ERISA-covered plan) or section 4975 of the Code (an IRA) in a manner that it knew or should have known would: [[Page 94045]] Further the criminal conduct that is the subject of the Conviction. . . .'' Revision 3. Clarification to Section I(g) of the Proposed Exemption The Department is clarifying Section I(g) to provide that BPLC may not act as a fiduciary within the meaning of ERISA Section 3(21)(A)(i) or (iii), or Code Section 4975(e)(3)(A) and (C), with respect to ERISA- covered plan and IRA assets; however, in accordance with that provision, BPLC 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 Section 4975(e)(3)(b) of the Code. The condition is also being revised to allow BPLC to act as a fiduciary with respect to employee benefit plans maintained or sponsored for their own employees or the employees of an affiliate. Revision 4. Modification to the Timeframe for BCI To Provide Notice of Its Obligations Under Section I(i) The last paragraph of Section (I) of the proposed exemption provides that ``[w]ithin four (4) months of the date of the Conviction, each Barclays Affiliated QPAM will provide a notice of its obligations under this Section I(i) to each ERISA-covered plan and IRA for which a Barclays Affiliated QPAM provides asset management or other discretionary fiduciary services.'' The Applicant states that BCI and its affiliates do not currently provide asset management or other discretionary fiduciary services to ERISA-covered plans or IRAs, and the four-month notice period has no purpose. Therefore the Applicant requests that this provision be modified to reflect that Barclays Affiliated QPAMs would in the future be required to provide notice prior to an engagement with an ERISA- covered plan or IRA subject to this temporary exemption, consistent with Sections I(h)(1) and I(h)(2). The Department concurs with this comment and has revised the condition accordingly. Revision 5. References to the Conviction The prefatory language of Section I of proposed temporary exemption provides that ``[i]f the proposed temporary exemption is granted, the Barclays Affiliated QPAMs and the Barclays Related QPAMs, as defined in Sections II(a) and II(b), respectively, will not be precluded from relying on the exemptive relief provided by Prohibited Transaction Class Exemption 84-14 (PTE 84-14 or the QPAM Exemption), notwithstanding a judgment of conviction against Barclays PLC (BPLC) (the Conviction, as defined in Section II(c)), for engaging in a conspiracy to: (1) Fix the price of, or (2) eliminate competition in the purchase or sale of the euro/U.S. dollar currency pair exchanged in the Foreign Exchange (FX) Spot Market. This temporary exemption will be effective for a period of up to twelve (12) months beginning on the Conviction Date (as defined in Section II(e) . . .'' Furthermore, Section II(e) of the proposed exemption provides, in relevant part, that ``[t]he term ``Conviction'' means the judgment of conviction against BPLC for violation of the Sherman Antitrust Act, 15 U.S.C. Sec. 1, which is scheduled to be entered in the District Court for the District of Connecticut (the District Court)(Case Number 3:15- cr-00077-SRU-1), in connection with BPLC, through certain of its euro/ U.S. dollar (EUR/USD) traders, entering into and engaging in a combination and conspiracy to fix, stabilize, maintain, increase or decrease the price of, and rig bids and offers for, the EUR/USD currency pair exchanged in the FX spot market by agreeing to eliminate competition in the purchase and sale of the EUR/USD currency pair in the United States and elsewhere. For all purposes under this temporary exemption, ``conduct'' of any person or entity that is the ``subject of [a] Conviction'' encompasses any conduct of BPLC and/or their personnel, that is described in the Plea Agreement, (including the Factual Statement), and other official regulatory or judicial factual findings that are a part of this record[.]'' The Applicant requests that the Department modify the prefatory language in Section I and Section II(e) of the proposed temporary exemption, to more precisely define the term ``Conviction.'' According to the Applicant, the reference to Conviction in the prefatory language of Section I of the proposed temporary exemption is incomplete and inexact and may create confusion on whether the exemption condition is met, leading to possible disputes with counterparties to the detriment of plans. The Department concurs with the Applicant's comment and has modified the relevant language in the final temporary exemption to provide that the term ``Conviction'' means the judgment of conviction against BPLC for violation of the Sherman Antitrust Act, 15 U.S.C. 1, which is scheduled to be entered in the District Court for the District of Connecticut (the District Court)(Case Number 3:15-cr-00077-SRU-1). For purposes of this exemption, ``conduct'' of any person or entity that is the subject of a ``Conviction'' encompasses the conduct described in Paragraph 4(g)-(j) of the Plea Agreement filed in the District Court in Case Number 3:15-cr-00077-SRU-1. The Department also deleted the parenthetical in paragraph I(a) regarding the term ``participate in'' and reworded the ``participate in'' parenthetical in paragraph I(c) to read: ``(for purposes of this paragraph (c), ``participated in'' includes approving or condoning the misconduct underlying the Conviction).'' Further, the Applicant notes that the term ``Conviction'' and ``Conviction Date'' are defined in Sections II(e) and II(f), respectively, rather than II(c) and II(e). The Department has corrected this inadvertent error. Revision 6. Indemnification Provision in Section I(i) Section I(i) of the proposed temporary exemption provides that ``[e]ffective as of the effective date of this temporary exemption, with respect to any arrangement, agreement, or contract between a Barclays Affiliated QPAM and an ERISA-covered plan or IRA for which such Barclays Affiliated QPAM provides asset management or other discretionary fiduciary services, each Barclays Affiliated QPAM agrees:'' . . . ``(7) To indemnify and hold harmless the ERISA-covered plan or IRA for any damages resulting from a violation of applicable laws, a breach of contract, or any claim arising out of the failure of such Barclays Affiliated QPAM to qualify for the exemptive relief provided by PTE 84-14 as a result of a violation of Section I(g) of PTE 84-14 other than the Conviction.'' The Applicant believes that this provision may operate in a manner that is fundamentally unfair as it is not limited to clients who are harmed through a direct, causal link to the loss of the exemptive relief provided by PTE 84-14. The Applicant states that the condition appears to allow plans and IRAs to seek to recover damages (i) that arise from violations and breaches by third parties, (ii) that arise only tenuously from the manager's conduct, (iii) that may be grossly unreasonable in amount, (iv) for claims without merit and (v) for claims in connection with accounts that do not rely on the relief provided by PTE 84-14. Accordingly, the Applicant requests that that the Department delete this condition or, in the alternative, expressly tie the requirement to damages with a proximate causal connection to relevant conduct of the manager by rewording the condition as follows: [[Page 94046]] ``(I)(i) [e]ffective as of the effective date of this temporary exemption, with respect to any arrangement, agreement, or contract between a Barclays Affiliated QPAM and an ERISA-covered plan or IRA under which such Barclays Affiliated QPAM provides asset management or other discretionary fiduciary services in reliance on PTE 84-14, each Barclays Affiliated QPAM agrees: . . . (7) To indemnify and hold harmless the ERISA-covered plan or IRA for any reasonable damages involving such arrangement, agreement or contract and resulting directly from a violation of ERISA by such Barclays Affiliated QPAM, or, to the extent the Barclays Affiliated QPAM relies on the exemptive relief provided by PTE 84-14 under the arrangement, agreement or contract, the failure of such Barclays Affiliated QPAM to qualify for the exemptive relief provided by PTE 84-14 as a result of a violation of Section I(g) of PTE 84-14 other than as a result of the Conviction. This condition does not require indemnification of indirect, special, consequential or punitive damages.'' The Department declines to make the requested revisions, but is modifying Section I(i)(7) to clarify that ``applicable laws'' refer to the fiduciary duties of ERISA and the prohibited transaction provisions of ERISA and the Code, which are likewise required to be included in the Policies described in Section I(h) of this exemption. Therefore, Section I(i)(7) of the temporary exemption, as granted, requires a Barclays Affiliated QPAM ``[t]o indemnify and hold harmless the ERISA- covered plan or IRA for any damages resulting from a violation of ERISA's fiduciary duties and of ERISA and the Code's prohibited transaction provisions, a breach of contract, or any claim arising out of the failure of such Barclays Affiliated QPAM to qualify for the exemptive relief provided by PTE 84-14 as a result of a violation of Section I(g) of PTE 84-14 other than the Conviction.'' Revision 7. Restrictions on Withdrawals in Section I(i) Section I(i)(4) of the proposed temporary exemption requires that Barclays Affiliated QPAMs must agree ``[n]ot to restrict the ability of such ERISA-covered plan or IRA to terminate or withdraw from its arrangement with the Barclays Affiliated QPAM (including 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 as a result of an actual lack of liquidity of the underlying assets, provided that such restrictions are applied consistently and in like manner to all such investors.'' The Department has modified Section I(i)(4) to make it clear that a lack of liquidity may include a range of similar circumstances where reasonable restrictions are necessary to protect remaining investors in a pooled fund. Furthermore, the Department has modified Section I(i)(4) in order to clarify that the limitation of adverse consequences to those resulting from a lack of liquidity, valuation issues, or regulatory reasons, is only required with respect to investments in a pooled fund subject to ERISA entered into after the Conviction Date. In any such event, the restrictions must be reasonable and last no longer than reasonably necessary to avoid the adverse consequences to investors in the fund. Therefore, the language of Section I(i)(4) in the final temporary exemption requires a Barclays Affiliated QPAM ``[n]ot to restrict the ability of such ERISA-covered plan or IRA to terminate or withdraw from its arrangement with the Barclays Affiliated QPAM with respect to any investment in a separately managed account or pooled fund subject to ERISA and managed by such QPAM, with the exception of reasonable restrictions, appropriately disclosed in advance, that are specifically designed to ensure equitable treatment of all investors in a pooled fund in the event such withdrawal or termination may have adverse consequences for all other investors. In connection with any such arrangements involving investments in pooled funds subject to ERISA entered into after the U.S. Conviction Date, the adverse consequences must relate to a lack of liquidity of the underlying assets, valuation issues, or regulatory reasons that prevent the fund from immediately redeeming an ERISA-covered plan's or IRA's investment, and such restrictions must be applicable to all such investors and effective no longer than reasonably necessary to avoid the adverse consequences.'' Revision 8. Scope of Contractual Obligations in Section I(i) The Department, own its on motion, is making a correction to Section I(i)(1) to revise the phrase at the end of Section I(i)(1)(i) that reads ``with respect to each such ERISA-covered plan and IRA'' to read in the final temporary exemption as follows: ``as applicable, with respect to each such ERISA-covered plan and IRA.'' The Department is also revising the notice requirement in Section I(i) to require that each Barclays Affiliated QPAM will provide a notice of its agreement under Section I(i) to each ERISA-covered plan and IRA for which a Barclays Affiliated QPAM provides asset management or other discretionary fiduciary services. Revision 9. Correction of the Term ``Barclays Affiliated QPAM'' Section II(a) of the proposed temporary exemption precludes both BPLC and BCI from acting as a QPAM. The Applicant represents that, as noted above, BCI was not the subject of the Conviction and should not be excluded from the temporary exemption. The Department concurs and has revised Section II(a) of the final temporary exemption accordingly. After giving full consideration to the record, the Department has decided to grant the temporary exemption, as described above. The complete application file (Application No. D-11862) is available for public inspection in the Public Disclosure Room of the Employee Benefits Security Administration, Room N-1515, U.S. Department of Labor, 200 Constitution Avenue NW., Washington, DC 20210. For a more complete statement of the facts and representations supporting the Department's decision to grant this temporary exemption, refer to the notice of proposed temporary exemption published on November 21, 2016 at 81 FR 83365. Temporary Exemption Operative Language Section I: Covered Transactions Certain entities with specified relationships to BCI (hereinafter, the Barclays Affiliated QPAMs and the Barclays Related QPAMs, as defined in Sections II(a) and II(b), respectively) will not be precluded from relying on the exemptive relief provided by Prohibited Transaction Class Exemption 84-14 (PTE 84-14 or the QPAM Exemption),\11\ notwithstanding the judgment of conviction against Barclays PLC (BPLC) (the Conviction, as defined in Section II(e)),\12\ for a period of up to [[Page 94047]] twelve (12) months beginning on the date of the Conviction (the Conviction Date, as defined in Section II(f)), provided that the following conditions are satisfied: --------------------------------------------------------------------------- \11\ 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). \12\ Section I(g) of PTE 84-14 generally provides that ``[n]either the QPAM nor any affiliate thereo . . . 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 violation of the Sherman Antitrust Act, Title 15 United States Code, Section 1. --------------------------------------------------------------------------- (a) Other than certain individuals who worked for a non-fiduciary business under BPLC, who had no responsibility for, and exercised no authority in connection with, the management of plan assets and who are no longer employed by BPLC the Barclays Affiliated QPAMs and the Barclays Related QPAMs (including their officers, directors, agents other than BPLC, and employees of such QPAMs who had responsibility for, or exercised authority in connection with the management of plan assets) did not know of, have reason to know of, or participate in the criminal conduct of BPLC that is the subject of the Conviction; (b) The Barclays Affiliated QPAMs and the Barclays Related QPAMs (including their officers, directors, agents other than BPLC, 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 Conviction; (c) The Barclays Affiliated QPAMs will not employ or knowingly engage any of the individuals that participated in the criminal conduct that is the subject of the Conviction (for purposes of this paragraph (c), ``participated in'' includes approving or condoning the misconduct underlying the Conviction); (d) A Barclays Affiliated QPAM will not use its authority or influence to direct an ``investment fund'' (as defined in Section VI(b) of PTE 84-14), that is subject to ERISA or the Code and managed by such Barclays Affiliated QPAM, to enter into any transaction with BPLC, or to engage BPLC, to provide any service to such investment fund, for a direct or indirect fee borne by such investment fund, regardless of whether such transaction or service may otherwise be within the scope of relief provided by an administrative or statutory exemption; (e) Any failure of a Barclays Affiliated QPAM or a Barclays Related QPAM to satisfy Section I(g) of PTE 84-14 arose solely from the Conviction; (f) A Barclays Affiliated QPAM or a Barclays Related QPAM did not exercise authority over the assets of any plan subject to Part 4 of Title I of ERISA (an ERISA-covered plan) or section 4975 of the Code (an IRA) in a manner that it knew or should have known would: Further the criminal conduct that is the subject of the Conviction; or cause the Barclays Affiliate QPAM or the Barclays Related QPAM or its affiliates or related parties to directly or indirectly profit from the criminal conduct that is the subject of the Conviction; (g) Other than with respect to employee benefit plans maintained or sponsored for their own employees or the employees of an affiliate, BPLC will not act as a fiduciary within the meaning of ERISA Section 3(21)(A)(i) or (iii), or Code Section 4975(e)(3)(A) or (C), with respect to ERISA-covered plan and IRA assets; in accordance with this provision, BPLC 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 Section 4975(e)(3)(b) of the Code; (h)(1) Prior to a Barclays Affiliated QPAM's engagement by any ERISA-covered plan or IRA for discretionary asset management services, the Barclays Affiliated QPAM must develop, implement, maintain, and follow written policies and procedures (the Policies) requiring and reasonably designed to ensure that: (i) The asset management decisions of the Barclays Affiliated QPAM are conducted independently of the corporate management and business activities of BPLC; (ii) The Barclays Affiliated QPAM fully complies with ERISA's fiduciary duties and with ERISA and the Code's prohibited transaction provisions, and does not knowingly participate in any violations of these duties and provisions with respect to ERISA-covered plans and IRAs; (iii) The Barclays Affiliated QPAM does not knowingly participate in any other person's violation of ERISA or the Code with respect to ERISA-covered plans and IRAs; (iv) Any filings or statements made by the Barclays Affiliated QPAM to regulators, including but not limited to, the Department, the Department of the Treasury, the Department of Justice, and the Pension Benefit Guaranty Corporation, on behalf of ERISA-covered plans or IRAs are materially accurate and complete, to the best of such QPAM's knowledge at that time; (v) The Barclays Affiliated QPAM does not make material misrepresentations or omit material information in its communications with such regulators with respect to ERISA-covered plans or IRAs, or make material misrepresentations or omit material information in its communications with ERISA-covered plans and IRA clients; (vi) The Barclays Affiliated QPAM complies with the terms of this temporary exemption; and (vii) Any violation of, or failure to comply with, an item in subparagraphs (ii) through (vi), is corrected promptly upon discovery, and any such violation or compliance failure not promptly corrected is reported, upon discovering the failure to promptly correct, in writing, to appropriate corporate officers, the head of compliance, and the General Counsel (or their functional equivalent) of the relevant Barclays Affiliated QPAM, and an appropriate fiduciary of any affected ERISA-covered plan or IRA, where such fiduciary is independent of BPLC; however, with respect to any ERISA-covered plan or IRA sponsored by an ``affiliate'' (as defined in Section VI(d) of PTE 84-14) of BPLC or beneficially owned by an employee of BPLC or its affiliates, such fiduciary does not need to be independent of BPLC. A Barclays Affiliated QPAM will not be treated as having failed to develop, implement, maintain, or follow the Policies, provided that it corrects any instance of noncompliance promptly when discovered or when it 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) Prior to a Barclays Affiliated QPAM's engagement by any ERISA covered plan or IRA for discretionary asset management services, the Barclays Affiliated QPAM must develop and implement a program of training (the Training), conducted at least annually, for all relevant Barclays Affiliated QPAM asset/portfolio management, trading, legal, compliance, and internal audit personnel. The Training must be set forth in the Policies and, 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 temporary exemption (including any loss of exemptive relief provided herein), and prompt reporting of wrongdoing; (i) Effective as of date of this temporary exemption with respect to any arrangement, agreement, or contract between a Barclays Affiliated QPAM and an ERISA-covered plan or IRA for which such Barclays Affiliated QPAM provides asset management or other discretionary fiduciary services, each Barclays Affiliated QPAM agrees: [[Page 94048]] (1) To comply with ERISA and the Code with respect to each such ERISA-covered plan and IRA, as applicable; to refrain from engaging in prohibited transactions that are not otherwise exempt (and to promptly correct any inadvertent prohibited transactions); and to comply with the standards of prudence and loyalty set forth in section 404 of ERISA, as applicable, with respect to each such ERISA-covered plan and IRA; (2) Not to require (or otherwise cause) the ERISA-covered plan or IRA to waive, limit, or qualify the liability of the Barclays Affiliated QPAM for violating ERISA or the Code or engaging in prohibited transactions; (3) Not to require the ERISA-covered plan or IRA (or sponsor of such ERISA-covered plan or beneficial owner of such IRA) to indemnify the Barclays Affiliated QPAM for violating ERISA or the Code or engaging in prohibited transactions, except for violations or prohibited transactions caused by an error, misrepresentation, or misconduct of a plan fiduciary or other party hired by the plan fiduciary, who is independent of BPLC, and its affiliates; (4) Not to restrict the ability of such ERISA-covered plan or IRA to terminate or withdraw from its arrangement with the Barclays Affiliated QPAM with respect to any investment in a separately managed account or pooled fund subject to ERISA and managed by such QPAM, with the exception of reasonable restrictions, appropriately disclosed in advance, that are specifically designed to ensure equitable treatment of all investors in a pooled fund in the event such withdrawal or termination may have adverse consequences for all other investors. In connection with any such arrangements involving investments in pooled funds subject to ERISA entered into after the U.S. Conviction Date, the adverse consequences must relate to a lack of liquidity of the underlying assets, valuation issues, or regulatory reasons that prevent the fund from immediately redeeming an ERISA-covered plan's or IRA's investment, and such restrictions must be applicable to all such investors and effective no longer than reasonably necessary to avoid the adverse consequences; (5) Not to impose any fees, penalties, or charges for such termination or withdrawal with the exception of reasonable fees, appropriately disclosed in advance, that are specifically designed to prevent generally recognized abusive investment practices or specifically designed to ensure equitable treatment of all investors in a pooled fund in the event such withdrawal or termination may have adverse consequences for all other investors, provided that such fees are applied consistently and in like manner to all such investors; (6) Not to include exculpatory provisions disclaiming or otherwise limiting liability of the Barclays Affiliated QPAM for a violation of such agreement's terms, except 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 BPLC, and its affiliates; and (7) To indemnify and hold harmless the ERISA-covered plan or IRA for any damages resulting from a violation of ERISA's fiduciary duties and of ERISA and the Code's prohibited transaction provisions, a breach of contract, or any claim arising out of the failure of such Barclays Affiliated QPAM to qualify for the exemptive relief provided by PTE 84- 14 as a result of a violation of Section I(g) of PTE 84-14 other than the Conviction. Prior to a Barclays Affiliated QPAM's engagement with an ERISA- covered plan or IRA, the Barclays Affiliated QPAM will provide a notice of its agreement and obligations under this Section I(i) to each ERISA- covered plan and IRA for which a Barclays Affiliated QPAM provides asset management or other discretionary fiduciary services; (j) The Barclays Affiliated QPAMs comply with each condition of PTE 84-14, as amended, with the sole exceptions of the violations of Section I(g) of PTE 84-14 that are attributable to the Conviction; (k) Each Barclays Affiliated QPAM will maintain records necessary to demonstrate that the conditions of this temporary exemption have been met, for six (6) years following the date of any transaction for which such Barclays Affiliated QPAM relies upon the relief in the temporary exemption; (l) During the effective period of this temporary exemption, BPLC: (1) Immediately discloses to the Department any Deferred Prosecution Agreement (a DPA) or Non-Prosecution Agreement (an NPA) that BPLC or an affiliate enters into with the U.S. Department of Justice, to the extent such DPA or NPA involves conduct described in Section I(g) of PTE 84-14 or section 411 of ERISA; and (2) Immediately provides the Department any information requested by the Department, as permitted by law, regarding the agreement and/or the conduct and allegations that led to the agreements; and (m) A Barclays Affiliated QPAM or a Barclays Related QPAM will not fail to meet the terms of this temporary exemption solely because a different Barclays Affiliated QPAM or Barclays Related QPAM fails to satisfy a condition for relief under this temporary exemption, described in Sections I(c), (d), (h), (i), (j) and (k). Section II: Definitions (a) The term ``Barclays Affiliated QPAM'' means a ``qualified professional asset manager'' (as defined in Section VI(a) \13\ of PTE 84-14) that relies on the relief provided by PTE 84-14 and with respect to which BPLC is a current or future ``affiliate'' (as defined in Section VI(d)(1) of PTE 84-14). The term ``Barclays Affiliated QPAM'' excludes BPLC. --------------------------------------------------------------------------- \13\ In general terms, a QPAM is an independent fiduciary that is a bank, savings and loan association, insurance company, or investment adviser that meets certain equity or net worth requirements and other licensure requirements and that has acknowledged in a written management agreement that it is a fiduciary with respect to each plan that has retained the QPAM. --------------------------------------------------------------------------- (b) The term ``Barclays Related QPAM'' means any current or future ``qualified professional asset manager'' (as defined in Section VI(a) of PTE 84-14) that relies on the relief provided by PTE 84-14, and with respect to which BPLC owns a direct or indirect five percent or more interest, but with respect to which BPLC is not an ``affiliate'' (as defined in Section VI(d)(1) of PTE 84-14). (c) The terms ``ERISA-covered plan'' and ``IRA'' mean, respectively, a plan subject to Part 4 of Title I of ERISA and a plan subject to section 4975 of the Code; (d) The term ``BPLC'' means Barclays PLC, the parent entity, and does not include any subsidiaries or other affiliates; (e) The term ``Conviction'' means the judgment of conviction against BPLC for violation of the Sherman Antitrust Act, 15 U.S.C. 1, which is scheduled to be entered in the District Court for the District of Connecticut (the District Court), Case Number 3:15-cr-00077-SRU-1. For all purposes under this temporary exemption, ``conduct'' of any person or entity that is the ``subject of [a] Conviction'' encompasses the conduct described in Paragraph 4(g)-(j) of the Plea Agreement filed in the District Court in Case Number 3:15-cr-00077-SRU-1; and (f) The term ``Conviction Date'' means the date that a judgment of Conviction against BPLC is entered by the District Court in connection with the Conviction. Effective Date: This temporary exemption is effective for the period [[Page 94049]] beginning on the Conviction Date until the earlier of: (1) The date that is twelve months following the Conviction Date; or (2) the effective date of a final agency action made by the Department in connection with an application for long-term exemptive relief for the covered transactions described herein. FOR FURTHER INFORMATION CONTACT: Ms. Anna Mpras Vaughan of the Department, telephone (202) 693-8565. (This is not a toll-free number.) UBS Assets Management (Americas) Inc.; UBS Realty Investors LLC; UBS Hedge Fund Solutions LLC; UBS O'Connor LLC; and Certain Future Affiliates in UBS's Asset Management and Wealth Management Americas Divisions (Collectively, the Applicants or the UBS QPAMs); Located in Chicago, Illinois; Hartford, Connecticut; New York, New York; and Chicago, Illinois, Respectively [Prohibited Transaction Exemption 2016-17; Exemption Application No. D- 11863] Temporary Exemption On November 17, 2016, the Department of Labor (the Department) published a notice of proposed temporary exemption in the Federal Register at 81 FR 81158, proposing that certain entities with specified relationships to UBS, AG (hereinafter, the UBS QPAMs) could continue to rely on the exemptive relief provided by PTE 84-14 (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)), notwithstanding the ``2013 Conviction'' against UBS Securities Japan Co., Ltd. entered on September 18, 2013 and the ``2016 Conviction'' against UBS AG (the 2013 Conviction and the 2016 Conviction are described in more detail in the proposed temporary exemption and further defined in Section II(a) of this final temporary exemption), for a period of up to twelve months beginning on the date that a judgment of conviction is entered against UBS in the 2016 Conviction. No relief from a violation of any other law is provided by this temporary exemption, including any criminal conviction described in the proposed temporary exemption. Furthermore, the Department cautions that the relief in this temporary exemption will terminate immediately if, among other things, an entity within the UBS corporate structure is convicted of a crime described in Section I(g) of PTE 84-14 (other than the 2013 or the 2016 Conviction) during the effective period of the temporary exemption. While such an entity could apply for a new exemption in that circumstance, the Department would not be obligated to grant the exemption. The terms of this temporary exemption have been specifically designed to permit plans to terminate their relationships in an orderly and cost effective fashion in the event of an additional conviction or a determination that it is otherwise prudent for a plan to terminate its relationship with an entity covered by the temporary exemption. Written Comments The Department invited all interested persons to submit written comments and/or requests for a public hearing with respect to the notice of proposed temporary exemption, published in the Federal Register at 81 FR 81158 on November 17, 2016. All comments and requests for hearing were due by November 22, 2016. The Applicant submitted a written comment letter requesting certain revisions to the proposed temporary exemption, which was further supplemented through additional correspondence, as requested by the Department. After considering the comment letter, the Department determined that some, but not all, of the requested revisions have merit, and has revised the exemption in the manner described below. All requested revisions and comments, accepted or omitted, will be reconsidered for purposes of the longer term relief proposed in the Federal Register at 81 FR 83385 on November 21, 2016, in connection with Exemption Application Number D-11907. The requested revisions and clarifications, and the Department's responses thereto, are described below. Revision 1. The Policies and Training Section I(h)(1) of the proposed temporary exemption requires each UBS QPAM to ``immediately develop, implement, maintain and follow'' the written policies and procedures (the Policies) described in Section I(h)(1)(i) through (vii). Furthermore, Section I(h)(2) requires each UBS QPAM to ``immediately develop and implement a program of training (the Training)'' described therein. In its comment and in subsequent conversations with the Department, the Applicants requested that Sections I(h)(1) and (2) be modified to allow the UBS QPAMs a period of up to six months following the date of the 2016 Conviction to meet these requirements. The Department concurs with the Applicants' request. Therefore, in the final temporary exemption, the Department has modified Section I(h)(1) and (2) to provide that, respectively, ``Within six (6) months of the Conviction Date, each UBS QPAM must develop, implement, maintain, and follow written policies and procedures (the Policies) . . .'' and ``Within six (6) months of the Conviction Date, each UBS QPAM must develop and implement a program of training (the Training) . . . .'' Revision 2. Timing of Audit Under PTE 2013-09 Section I(i)(1) of the proposed temporary exemption requires that each UBS QPAM submit to an independent audit to evaluate the adequacy of, and the UBS QPAM's compliance with, the Policies and Training requirements of the exemption. The audit must cover the twelve month period beginning on the Conviction Date, and be completed no later than six months thereafter. Section I(i)(1) of this temporary exemption provides further that, ``[f]or time periods prior to the Conviction Date and covered under PTE 2013-09, the audit requirements in Section (g) of PTE 2013-09 will remain in effect.'' \14\ --------------------------------------------------------------------------- \14\ Prior to the Conviction Date, the effective date of this temporary exemption, the UBS QPAMs were required to rely on the relief provided by PTE 2013-09 in order to engage in prohibited transactions covered under PTE 84-14. In complying with PTE 2013-09, the QPAMs were subject to an annual independent audit covering the twelve month period beginning on the September 18th of each year. According to the Applicants, the last full annual audit period ended on September 18, 2016. --------------------------------------------------------------------------- In its comment, the Applicants state that the UBS QPAMs are currently subject to a short audit period beginning on September 18, 2016, the end of the most recent audit period under PTE 2013-09, and ending on the Conviction Date, currently scheduled for January 5, 2017. The Applicants state that it is unclear when the audit under this short period must be completed and when the written report would be due, because the twelve-month audit period under this temporary exemption begins on the Conviction Date. UBS requests that this short audit period under PTE 2013-09 be combined with the twelve month audit period required by this temporary exemption. In the alternative, the Applicants request that the Department clarify when the final audit and written report required under PTE 2013-09 is due to be completed and submitted to the Department. The Department concurs with the Applicants' request that the short audit period may be combined with the twelve-month audit period under this temporary exemption, at the election of the independent auditor, and has modified the language of Section I(i)(1) as such. Section I(i)(1) has also be modified to clarify when the final audit under PTE 2013-09 must be completed, [[Page 94050]] in the event that the short audit period is not so combined with the twelve-month audit period under this temporary exemption. Revision 3. Restrictions on Withdrawals in Section I(j) The UBS QPAMs request a revision to Section I(j) of the proposed temporary exemption, which imposes certain contractual obligations that UBS QPAMs must agree to enter into in connection with any arrangement, agreement, or contract between such UBS QPAMs and ERISA-covered plans and IRAs for which such QPAMs provide asset management or other discretionary fiduciary services. Section I(j)(4) of the proposed temporary exemption requires that the UBS QPAMs must agree ``[n]ot to restrict the ability of such ERISA-covered plan or IRA to terminate or withdraw from its arrangement with the UBS QPAM (including 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 as a result of an actual lack of liquidity of the underlying assets, provided that such restrictions are applied consistently and in like manner to all such investors.'' The Applicants request that the Department revise Section I(j)(4) in order to allow reasonable restrictions on a plan's ability to terminate or withdraw from its arrangement with a UBS QPAM involving an investment in a pooled fund, for reasons other than an ``actual lack of liquidity.'' According to the Applicants, these circumstances include (but are not limited to) situations where (i) it would be impracticable to establish an accurate fair market value for some of the underlying assets in a commingled fund; and (ii) there are ``holdbacks'' pending the receipt of audited financial statements for the fund, so that final asset values have not yet been determined. The Applicants have proposed that Section I(j)(4) be revised to provide that ``in the event such withdrawal or termination may have adverse consequences for all other investors as the result of a lack of liquidity of the underlying assets, valuation issues, or regulatory reasons that prevent the fund from immediately redeeming an ERISA-covered plan's or IRA's investment, provided that such restrictions are applicable to all such investors.'' The Department has modified Section I(j)(4) to make it clear that a ``lack of liquidity'' may include a range of circumstances where reasonable restrictions are necessary to protect remaining investors in a pooled fund. Further, the Department has added language to clarify that, in any such event the restrictions must be reasonable and last no longer than reasonably necessary to remedy the adverse consequences. Therefore, the Department has modified Section I(j)(4) of this temporary exemption to require UBS QPAMs: ``Not to restrict the ability of such ERISA-covered plan or IRA to terminate or withdraw from its arrangement with the UBS QPAM with respect to any investment in a separately managed account or pooled fund subject to ERISA and managed by such QPAM, with the exception of reasonable restrictions, appropriately disclosed in advance, that are specifically designed to ensure equitable treatment of all investors in a pooled fund in the event such withdrawal or termination may have adverse consequences for all other investors. In connection with any such arrangements involving investments in pooled funds subject to ERISA entered into after the Conviction Date, the adverse consequences must relate to of a lack of liquidity of the underlying assets, valuation issues, or regulatory reasons that prevent the fund from immediately redeeming an ERISA- covered plan's or IRA's investment, and such restrictions must be applicable to all such investors and effective no longer than reasonably necessary to avoid the adverse consequences.'' Revision 4. Indemnification Provisions in Section I(j) Section I(j) of the proposed temporary exemption provides that, ``[e]ffective as of the effective date of this temporary exemption, with respect to any arrangement, agreement, or contract between a UBS QPAM and an ERISA-covered plan or IRA for which a UBS QPAM provides asset management or other discretionary fiduciary services, each UBS QPAM agrees'' to comply with certain obligations described in Sections I(j)(1) through (7). Specifically, Section I(j)(7) requires such UBS QPAM ``[t]o indemnify and hold harmless the ERISA-covered plan or IRA for any damages resulting from a violation of applicable laws, a breach of contract, or any claim arising out of the failure of such UBS QPAM to qualify for the exemptive relief provided by PTE 84-14 as a result of a violation of Section I(g) of PTE 84-14 other than the Convictions.'' The Department, is modifying Section I(i)(7) to clarify that the ``applicable laws'' referred to in Section I(i)(7) refer to the fiduciary duties of ERISA and the prohibited transaction provisions of ERISA and the Code. The requirement to comply with ERISA's fiduciary duties and with ERISA and the Code's prohibited transaction provisions is also included in the Policies required under the exemption. Therefore, Section I(i)(7) of the temporary exemption, as granted, requires a UBS QPAM ``[t]o indemnify and hold harmless the ERISA- covered plan or IRA for any damages resulting from a violation of ERISA's fiduciary duties and of ERISA and the Code's prohibited transaction provisions, a breach of contract, or any claim arising out of the failure of such UBS QPAM to qualify for the exemptive relief provided by PTE 84-14 as a result of a violation of Section I(g) of PTE 84-14 other than the Convictions.'' The Department is also revising the notice requirement in Section I(j)(8) to require that each UBS QPAM will provide a notice of its agreement under Section I(j) to each ERISA-covered plan and IRA for which a UBS QPAM provides asset management or other discretionary fiduciary services within six (6) months of the effective date of this temporary exemption. Revision 5. Modification of Section I(g) Section I(g) of the proposed temporary exemption provides that ``UBS and UBS Securities Japan will not provide discretionary asset management services to ERISA-covered plans or IRAs, nor will otherwise act as a fiduciary with respect to ERISA-covered plan or IRA assets.'' The Department has modified Section I(g) in order to clarify that UBS and UBS Securities Japan will not violate the condition in the event that they inadvertently become investment advice fiduciaries and that UBS can act as a fiduciary for plans that it sponsors for its own employees or employees of an affliate. Therefore, Section I(g) of the temporary exemption, as granted, provides that ``Other than with respect to plans sponsored or maintained by UBS for its own employees or employees of an affiliate, UBS and UBS Securities Japan will not act as fiduciaries within the meaning of ERISA Section 3(21)(A)(i) or (iii), or Code Section 4975(e)(3)(A) or (C) with respect to ERISA-covered plan or IRA assets; in accordance with this provision, UBS and UBS Securities Japan will not be treated as violating the conditions of [[Page 94051]] 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).'' Revision 6. Definition of Convictions and FX Misconduct The Applicants also request that the Department modify the language in Section II(a) regarding the definition of ``Convictions.'' Section II(a) of the proposed temporary exemption provides that ``for all purposes under this temporary exemption, ``conduct'' of any person or entity that is the ``subject of [a] Conviction'' encompasses any conduct of UBS and/or their personnel, that is described in the Plea Agreement, (including Exhibits 1 and 3 attached thereto), and other official regulatory or judicial factual findings that are a part of this record.'' Specifically, the UBS QPAMs request that the Department strike the reference to ``official regulatory or judicial factual findings that are a part of this record,'' because, according to the Applicants, it is unclear what documents are being referred to. Furthermore, the Applicants state that they are unaware of any other documents having been made a part of the record besides the Plea Agreement, (including Exhibits 1 and 3 attached thereto). The Applicants suggest that the Department modify the language of Section II(a) to provide that the ``conduct'' of any person or entity that is ``subject of [a] Conviction'' encompasses any conduct of UBS and/or their personnel, that is described in Exhibit 3 to the Plea Agreement entered into between UBS AG and the Department of Justice Criminal Division, on May 20, 2015, in connection with Case Number 3:15-cr- 00076-RNC, and Exhibits 3 and 4 to the Plea Agreement entered into between UBS Securities Japan and the Department of Justice Criminal Division, on December 19, 2012, in connection with Case Number 3:12-cr- 00268-RNC. The Department concurs with the applicant and has removed the reference to ``official regulatory or judicial factual findings that are a part of this record,'' from the definition of ``Convictions'' in Section II(a). Furthermore, the Department has modified the language in Section II(a) to provide that the `` `conduct' of any person or entity that is the `subject of [a] Conviction' encompasses any conduct of UBS and/or their personnel, that is described (i) in Exhibit 3 to the Plea Agreement entered into between UBS AG and the Department of Justice Criminal Division, on May 20, 2015, in connection with Case Number 3:15-cr-00076-RNC, and (ii) Exhibits 3 and 4 to the Plea Agreement entered into between UBS Securities Japan and the Department of Justice Criminal Division, on December 19, 2012, in connection with Case Number 3:12-cr-00268-RNC.'' In addition to modifying to the definition of ``Convictions'' in Section II(a), the Department also deleted the parenthetical in Section I(a) regarding the term ``participate in'' and reworded the ``participate in'' parenthetical in Section I(c) to read: ``(for purposes of this paragraph (c), ``participated in'' includes approving or condoning the misconduct underlying the Conviction).'' The applicant has also requested the Department revise the definition of ``FX Misconduct'' in Section II(e) of the temporary exemption to limit the term to the conduct described in ``Paragraph 15 of Exhibit 1 of the Plea Agreement (Factual Basis for Breach).'' The Department declines to make the requested change to the definition of ``FX Misconduct'' in Section II(e). The Department understands that, based on the record, the Department of Justice terminated UBS AG's 2012 Non-Prosecution Agreement (the NPA) related to UBS's fraudulent submission of LIBOR rates as a result of a determination that UBS engaged in deceptive currency trading and sales practices, as well as collusive conduct in certain FX markets. Thus, narrowing the definition of the FX Misconduct to include only paragraph 15 of Exhibit 1 of the Plea Agreement would not appropriately reflect the misconduct of UBS employees in regard to the FX markets that was taken into consideration in the breach of the NPA. Revision 7. Technical Corrections and Clarifications The Department is making a technical correction to the Section I(j) to clarify the language in that Section. In this regard, the Department is revising the phrase at the end of Section I(j)(1) that reads ``as applicable'' to read in the final temporary exemption as follows: ``as applicable, with respect to each such ERISA-covered plan and IRA.'' The Department intended for each UBS QPAM to contractually obligate itself to apply the standards of prudence and loyalty set forth in section 404 of ERISA, as applicable, to all ERISA-covered plans and IRAs for which such QPAM provides asset management or other discretionary fiduciary services. Therefore, the revised Section I(j)(1) in the final temporary exemption will require that each UBS QPAM agrees ``[t]o comply with ERISA and the Code, as applicable with respect to such ERISA-covered plan or IRA; to refrain from engaging in prohibited transactions that are not otherwise exempt (and to promptly correct any inadvertent prohibited transactions); and to comply with the standards of prudence and loyalty set forth in section 404 of ERISA, as applicable, with respect to each such ERISA-covered plan and IRA.'' The Applicants' comment makes certain clarifications to the Summary of Facts and Representations in the proposed temporary exemption. The proposed temporary exemption provides at 81 FR 81163 that UBS adopted and began to implement an automated system to monitor transactions covering the all asset classes in 2013. However, the Applicants note in their comment that such implementation began in early 2014. In addition, the proposed temporary exemption at 81 FR 81163 states that UBS has prohibited the use of mobile phones on trading floors. However, the Applicants note in their comment that UBS has prohibited the use of personal mobile phones on trading floors for all investment bank sales and trading staff. The Department takes note of the Applicants' clarifications. After giving full consideration to the entire record, the Department has decided to grant the temporary exemption. The complete application file for the temporary exemption (Exemption Application No. D-11863), including all supplemental submissions received by the Department, is available for public inspection in the Public Disclosure Room of the Employee Benefits Security Administration, Room N-1515, U.S. Department of Labor, 200 Constitution Avenue NW., Washington, DC 20210. For a more complete statement of the facts and representations supporting the Department's decision to grant this exemption, refer to the proposed exemption published in the Federal Register on November 17, 2016 at 81 FR 81158. Temporary Exemption Operative Language Section I: Covered Transactions Certain entities with specified relationships to UBS, AG (hereinafter, the UBS QPAMs as further defined in Section II(b)) shall not be precluded from relying on the exemptive relief provided by Prohibited Transaction Exemption 84-14 (PTE 84-14),\15\ [[Page 94052]] notwithstanding the ``2013 Conviction'' against UBS Securities Japan Co., Ltd. entered on September 18, 2013 and the ``2016 Conviction'' against UBS (collectively the Convictions, as further defined in Section II(a)),\16\ for a period of up to twelve months beginning on the Conviction Date (as defined in Section II(d)), provided that the following conditions are satisfied: --------------------------------------------------------------------------- \15\ 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). \16\ Section I(g) of PTE 84-14 generally provides that ``[n]either the QPAM nor any affiliate thereof . . . nor any owner . . . of a 5 percent or more interest in the QPAM is a person who within the 10 years immediately preceding the transaction has been either convicted or released from imprisonment, whichever is later, as a result of'' certain criminal activity therein described. --------------------------------------------------------------------------- (a) The UBS QPAMs (including their officers, directors, agents other than UBS, and employees of such UBS QPAMs) did not know of, have reason to know of, or participate in: (1) The FX Misconduct; or (2) the criminal conduct that is the subject of the Convictions; (b) The UBS QPAMs (including their officers, directors, agents other than UBS, and employees of such UBS QPAMs) did not receive direct compensation, or knowingly receive indirect compensation, in connection with: (1) The FX Misconduct; or (2) the criminal conduct that is the subject of the Convictions; (c) The UBS QPAMs will not employ or knowingly engage any of the individuals that participated in: (1) The FX Misconduct or (2) the criminal conduct that is the subject of the Convictions (for purposes of this Section I(c), ``participated in'' includes approving or condoning the FX Misconduct or the misconduct that is the subject of the Convictions); (d) A UBS QPAM will not use its authority or influence to direct an ``investment fund'' (as defined in Section VI(b) of PTE 84-14) that is subject to ERISA or the Code and managed by such UBS QPAM, to enter into any transaction with UBS or UBS Securities Japan or engage UBS or UBS Securities Japan to provide any service to such investment fund, for a direct or indirect fee borne by such investment fund, regardless of whether such transaction or service may otherwise be within the scope of relief provided by an administrative or statutory exemption; (e) Any failure of the UBS QPAMs to satisfy Section I(g) of PTE 84- 14 arose solely from the Convictions; (f) A UBS 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 FX Misconduct or the criminal conduct that is the subject of the Convictions; or cause the UBS QPAM, its affiliates or related parties to directly or indirectly profit from the FX Misconduct or the criminal conduct that is the subject of the Convictions; (g) Other than with respect to plans sponsored or maintained by UBS for its own employees or employees of an affiliate, UBS and UBS Securities Japan will not act as fiduciaries within the meaning of ERISA Section 3(21)(A)(i) or (iii), or Code Section 4975(e)(3)(A) or (C) with respect to ERISA-covered plan or IRA assets; in accordance with this provision, UBS and UBS Securities Japan will not be treated as violating the conditions of this exemption solely because they acted as investment advice fiduciaries within the meaning of ERISA Section 3(21)(A)(ii), or Code Section 4975(e)(3)(B); (h)(1) Within six (6) months of the Conviction Date, each UBS QPAM must develop, implement, maintain, and follow written policies and procedures (the Policies) requiring and reasonably designed to ensure that: (i) The asset management decisions of the UBS QPAM are conducted independently of UBS's corporate management and business activities, including the corporate management and business activities of the Investment Bank division and UBS Securities Japan; (ii) The UBS QPAM fully complies with ERISA's fiduciary duties and with ERISA and the Code's prohibited transaction provisions, and does not knowingly participate in any violation of these duties and provisions with respect to ERISA-covered plans and IRAs; (iii) The UBS QPAM does not knowingly participate in any other person's violation of ERISA or the Code with respect to ERISA-covered plans and IRAs; (iv) Any filings or statements made by the UBS QPAM to regulators, including but not limited to, the Department of Labor, the Department of the Treasury, the Department of Justice, and the Pension Benefit Guaranty Corporation, on behalf of ERISA-covered plans or IRAs are materially accurate and complete, to the best of such QPAM's knowledge at that time; (v) The UBS QPAM does not make material misrepresentations or omit material information in its communications with such regulators with respect to ERISA-covered plans or IRAs, or make material misrepresentations or omit material information in its communications with ERISA-covered plan and IRA clients; (vi) The UBS QPAM complies with the terms of this temporary exemption; and (vii) Any violation of, or failure to comply with, an item in subparagraph (ii) through (vi), is corrected promptly upon discovery, and any such violation or compliance failure not promptly corrected is reported, upon the discovery of such failure to promptly correct, in writing, to appropriate corporate officers, the head of compliance and the General Counsel (or their functional equivalent) of the relevant UBS QPAM, the independent auditor responsible for reviewing compliance with the Policies, and an appropriate fiduciary of any affected ERISA- covered plan or IRA that is independent of UBS; however, with respect to any ERISA-covered plan or IRA sponsored by an ``affiliate'' (as defined in Section VI(d) of PTE 84-14) of UBS or beneficially owned by an employee of UBS or its affiliates, such fiduciary does not need to be independent of UBS. A UBS QPAM will not be treated as having failed to develop, implement, maintain, or follow the Policies, provided that it corrects any instance of noncompliance promptly when discovered or when it 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) Within six (6) months of the Conviction Date, each UBS QPAM must develop and implement a program of training (the Training), conducted at least annually, for all relevant UBS QPAM asset/portfolio management, trading, legal, compliance, and internal audit personnel. The Training must: (i) Be set forth in the Policies and 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 temporary exemption (including any loss of exemptive relief provided herein), and prompt reporting of wrongdoing; and (ii) Be conducted by an independent professional who has been prudently selected and who has appropriate technical training and proficiency with ERISA and the Code; (i)(1) Each UBS QPAM submits to an audit conducted by an independent auditor, who has been prudently selected and who has appropriate technical training and proficiency with ERISA and the Code, to evaluate the [[Page 94053]] adequacy of, and the UBS QPAM's compliance with, the Policies and Training described herein. The audit requirement must be incorporated in the Policies. The audit must cover the twelve month period that begins on the Conviction Date, and must be completed no later than six (6) months after the twelve month period. For time periods prior to the Conviction Date and covered by the audit required pursuant to PTE 2013- 09, the audit requirements in Section (g) of PTE 2013-09 will remain in effect. The auditor may, at its own discretion, elect to combine the twelve-month audit period required under this temporary exemption with the period of time from September 18, 2016 until the effective date of this temporary exemption, such that each period, though audited under the standards applicable to that period, will be covered in a single audit report issued no later than six (6) months after the twelve-month period that begins on the Conviction Date. If the final audit period under PTE 2013-09 is not combined with the twelve-month audit required under this temporary exemption, the final audit period under PTE 2013- 09 must be completed and submitted within six (6) months of the effective date of this temporary exemption; (2) To the extent necessary for the auditor, in its sole opinion, to complete its audit and comply with the conditions for relief described herein, and as permitted by law, each UBS QPAM and, if applicable, UBS, 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; (3) The auditor's engagement must specifically require the auditor to determine whether each UBS QPAM has developed, implemented, maintained, and followed the Policies in accordance with the conditions of this temporary exemption and has developed and implemented the Training, as required herein; (4) The auditor's engagement must specifically require the auditor to test each UBS QPAM's operational compliance with the Policies and Training. In this regard, the auditor must test a sample of each QPAM's transactions involving ERISA-covered plans and IRAs sufficient in size and nature to afford the auditor a reasonable basis to determine the operational compliance with the Policies and Training; (5) On or before the end of the relevant period described in Section I(i)(1) for completing the audit, the auditor must issue a written report (the Audit Report) to UBS and the UBS QPAM to which the audit applies that describes the procedures performed by the auditor during the course of its examination. The Audit Report must include the auditor's specific determinations regarding: The adequacy of the UBS QPAM's Policies and Training; the UBS QPAM's compliance with the Policies and Training; the need, if any, to strengthen such Policies and Training; and any instance of the respective UBS QPAM's noncompliance with the written Policies and Training described in Section I(h) above. 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 UBS QPAM must be promptly addressed by such UBS QPAM, and any action taken by such UBS QPAM to address such recommendations must be included in an addendum to the Audit Report (which addendum is completed prior to the certification described in Section I(i)(7) below). Any determination by the auditor that the respective UBS QPAM has implemented, maintained, and followed sufficient Policies and Training must not be based solely or in substantial part on an absence of evidence indicating noncompliance. In this last regard, any finding that the UBS QPAM has complied with the requirements under this subsection must be based on evidence that demonstrates the UBS QPAM has actually implemented, maintained, and followed the Policies and Training required by this temporary exemption; (6) The auditor must notify the respective UBS 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 General Counsel, or one of the three most senior executive officers of the UBS QPAM to which the Audit Report applies, must certify in writing, under penalty of perjury, that the officer has reviewed the Audit Report and this temporary exemption; addressed, corrected, or remedied any inadequacy identified in the Audit Report; and determined that the Policies and Training in effect at the time of signing are adequate to ensure compliance with the conditions of this temporary exemption and with the applicable provisions of ERISA and the Code; (8) The Risk Committee, the Audit Committee, and the Corporate Culture and Responsibility Committee of UBS's Board of Directors are provided a copy of each Audit Report; and a senior executive officer of UBS's Compliance and Operational Risk Control function must review the Audit Report for each UBS QPAM and must certify in writing, under penalty of perjury, that such officer has reviewed each Audit Report; (9) Each UBS QPAM must provide its certified Audit Report, by regular mail to: The Department's Office of Exemption Determinations (OED), 200 Constitution Avenue NW., Suite 400, Washington, DC 20210, or by private carrier to: 122 C Street NW., Suite 400, Washington, DC 20001-2109, no later than 45 days following its completion. The Audit Report will be part of the public record regarding this temporary exemption. Furthermore, each UBS QPAM must make its Audit Report unconditionally available for examination by any duly authorized employee or representative of the Department, other relevant regulators, and any fiduciary of an ERISA-covered plan or IRA, the assets of which are managed by such UBS QPAM; (10) Each UBS QPAM and the auditor must submit to OED: (A) Any engagement agreement entered into pursuant to the engagement of the auditor under this temporary exemption; and (B) any engagement agreement entered into with any other entity retained in connection with such QPAM's compliance with the Training or Policies conditions of this temporary exemption no later than six (6) months after the Conviction Date (and one month after the execution of any agreement thereafter); (11) The auditor must provide OED, upon request, all of the workpapers created and utilized in the course of the audit, including, but not limited to: The audit plan; audit testing; identification of any instance of noncompliance by the relevant UBS QPAM; and an explanation of any corrective or remedial action taken by the applicable UBS QPAM; and (12) UBS must notify the Department at least 30 days prior to any substitution of an auditor, except that no such replacement will meet the requirements of this paragraph unless and until UBS demonstrates to the Department's satisfaction that such new auditor is independent of UBS, experienced in the matters that are the subject of the temporary exemption and capable of making the determinations required of this temporary exemption; (j) As of the Conviction Date, with respect to any arrangement, agreement, [[Page 94054]] or contract between a UBS QPAM and an ERISA-covered plan or IRA for which such UBS QPAM provides asset management or other discretionary fiduciary services, each UBS QPAM agrees: (1) To comply with ERISA and the Code, as applicable with respect to such ERISA-covered plan or IRA; to refrain from engaging in prohibited transactions that are not otherwise exempt (and to promptly correct any inadvertent prohibited transactions); and to comply with the standards of prudence and loyalty set forth in section 404 of ERISA, as applicable, with respect to each such ERISA-covered plan and IRA; (2) Not to require (or otherwise cause) the ERISA-covered plan or IRA to waive, limit, or qualify the liability of the UBS QPAM for violating ERISA or the Code or engaging in prohibited transactions; (3) Not to require the ERISA-covered plan or IRA (or sponsor of such ERISA-covered plan or beneficial owner of such IRA) to indemnify the UBS QPAM for violating ERISA or engaging in prohibited transactions, except for violations or prohibited transactions caused by an error, misrepresentation, or misconduct of a plan fiduciary or other party hired by the plan fiduciary who is independent of UBS; (4) Not to restrict the ability of such ERISA-covered plan or IRA to terminate or withdraw from its arrangement with the UBS QPAM with respect to any investment in a separately managed account or pooled fund subject to ERISA and managed by such QPAM, with the exception of reasonable restrictions, appropriately disclosed in advance, that are specifically designed to ensure equitable treatment of all investors in a pooled fund in the event such withdrawal or termination may have adverse consequences for all other investors. In connection with any such arrangements involving investments in pooled funds subject to ERISA entered into after the Conviction Date, the adverse consequences must relate to of a lack of liquidity of the underlying assets, valuation issues, or regulatory reasons that prevent the fund from immediately redeeming an ERISA-covered plan's or IRA's investment, and such restrictions must be applicable to all such investors and effective no longer than reasonably necessary to avoid the adverse consequences; (5) Not to impose any fees, penalties, or charges for such termination or withdrawal with the exception of reasonable fees, appropriately disclosed in advance, that are specifically designed to prevent generally recognized abusive investment practices or specifically designed to ensure equitable treatment of all investors in a pooled fund in the event such withdrawal or termination may have adverse consequences for all other investors, provided that such fees are applied consistently and in like manner to all such investors; (6) Not to include exculpatory provisions disclaiming or otherwise limiting liability of the UBS QPAM for a violation of such agreement's terms, except 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 UBS and its affiliates; and (7) To indemnify and hold harmless the ERISA-covered plan or IRA for any damages resulting from a violation of ERISA's fiduciary duties and of ERISA and the Code's prohibited transaction provisions, a breach of contract, or any claim arising out of the failure of such UBS QPAM to qualify for the exemptive relief provided by PTE 84-14 as a result of a violation of Section I(g) of PTE 84-14 other than the Convictions; (8) Within six (6) months of the effective date of this temporary exemption each UBS QPAM will provide a notice of its agreement and obligations under this Section I(j) to each ERISA-covered plan and IRA for which a UBS QPAM provides asset management or other discretionary fiduciary services; (k) The UBS QPAMs comply with each condition of PTE 84-14, as amended, with the sole exceptions of the violations of Section I(g) of PTE 84-14 that are attributable to the Convictions; (l) UBS imposes its internal procedures, controls, and protocols on UBS Securities Japan to: (1) Reduce the likelihood of any recurrence of conduct that that is the subject of the 2013 Conviction, and (2) comply in all material respects with the Business Improvement Order, dated December 16, 2011, issued by the Japanese Financial Services Authority; (m) UBS complies in all material respects with the audit and monitoring procedures imposed on UBS by the United States Commodity Futures Trading Commission Order, dated December 19, 2012; (n) Each UBS QPAM will maintain records necessary to demonstrate that the conditions of this temporary exemption have been met, for six (6) years following the date of any transaction for which such UBS QPAM relies upon the relief in the temporary exemption; (o) During the effective period of this temporary exemption UBS: (1) Immediately discloses to the Department any Deferred Prosecution Agreement (a DPA) or Non-Prosecution Agreement (an NPA) that UBS or any of its affiliates enters into with the U.S. Department of Justice, to the extent such DPA or NPA involves conduct described in Section I(g) of PTE 84-14 or section 411 of ERISA; and (2) immediately provides the Department any information requested by the Department, as permitted by law, regarding the agreement and/or the conduct and allegations that led to the agreement; and (p) A UBS QPAM will not fail to meet the terms of this temporary exemption solely because a different UBS QPAM fails to satisfy a condition for relief under this temporary exemption described in Sections I(c), (d), (h), (i), (j), (k), and (n). Section II: Definitions (a) The term ``Convictions'' means the 2013 Conviction and the 2016 Conviction. The term ``2013 Conviction'' means the judgment of conviction against UBS Securities Japan Co. Ltd. in Case Number 3:12- cr-00268-RNC in the U.S. District Court for the District of Connecticut for one count of wire fraud in violation of Title 18, United Sates Code, sections 1343 and 2 in connection with submission of YEN London Interbank Offered Rates and other benchmark interest rates. The term ``2016 Conviction'' means the anticipated judgment of conviction against UBS AG in Case Number 3:15-cr-00076-RNC in the U.S. District Court for the District of Connecticut for one count of wire fraud in violation of Title 18, United States Code, Sections 1343 and 2 in connection with UBS's submission of Yen London Interbank Offered Rates and other benchmark interest rates between 2001 and 2010. For all purposes under this proposed temporary exemption, ``conduct'' of any person or entity that is the ``subject of [a] Conviction'' encompasses any conduct of UBS and/or their personnel, that is described (i) in Exhibit 3 to the Plea Agreement entered into between UBS AG and the Department of Justice Criminal Division, on May 20, 2015, in connection with Case Number 3:15-cr-00076-RNC, and (ii) Exhibits 3 and 4 to the Plea Agreement entered into between UBS Securities Japan and the Department of Justice Criminal Division, on December 19, 2012, in connection with Case Number 3:12-cr-00268-RNC; (b) The term ``UBS QPAM'' means UBS Asset Management (Americas) Inc., UBS Realty Investors LLC, UBS Hedge Fund Solutions LLC, UBS O'Connor LLC, and any future entity within the [[Page 94055]] Asset Management or the Wealth Management Americas divisions of UBS AG that qualifies as a ``qualified professional asset manager'' (as defined in Section VI(a) \17\ of PTE 84-14) and that relies on the relief provided by PTE 84-14 and with respect to which UBS AG is an ``affiliate'' (as defined in Part VI(d)(1) of PTE 84-14). The term ``UBS QPAM'' excludes the parent entity, UBS AG and UBS Securities Japan. --------------------------------------------------------------------------- \17\ In general terms, a QPAM is an independent fiduciary that is a bank, savings and loan association, insurance company, or investment adviser that meets certain equity or net worth requirements and other licensure requirements and that has acknowledged in a written management agreement that it is a fiduciary with respect to each plan that has retained the QPAM. --------------------------------------------------------------------------- (c) The term ``UBS'' means UBS AG. (d) The term ``Conviction Date'' means the date that a judgment of conviction against UBS is entered in the 2016 Conviction. (e) The term ``FX Misconduct'' means the conduct engaged in by UBS personnel described in Exhibit 1 of the Plea Agreement (Factual Basis for Breach) entered into between UBS AG and the Department of Justice Criminal Division, on May 20, 2015 in connection with Case Number 3:15- cr-00076-RNC filed in the U.S. District Court for the District of Connecticut. (f) The term ``UBS Securities Japan'' means UBS Securities Japan Co. Ltd, a wholly-owned subsidiary of UBS incorporated under the laws of Japan. (g) The term ``Plea Agreement'' means the Plea Agreement (including Exhibits 1 and 3 attached thereto) entered into between UBS AG and the Department of Justice Criminal Division, on May 20, 2015 in connection with Case Number 3:15-cr-00076-RNC filed in the U.S. District Court for the District of Connecticut. Effective Date: This temporary exemption is effective for the period beginning on the date that a judgment of conviction against UBS is entered in Case Number 3:15-cr-00076-RNC in the U.S. District Court for the District of Connecticut for one count of wire fraud in violation of Title 18, United States Code, Sections 1343 and 2 (the Conviction Date), and ending on the earlier of: The date that is twelve months following the Conviction Date; or the effective date of a final agency action made by the Department in connection with Exemption Application No. D-11907, an application for long-term exemptive relief for the covered transactions described herein. FOR FURTHER INFORMATION CONTACT: Brian Mica, telephone (202) 693-8402, Office of Exemption Determinations, Employee Benefits Security Administration, U.S. Department of Labor (this is not a toll-free number). General Information The attention of interested persons is directed to the following: (1) The fact that a transaction is the subject of an exemption under section 408(a) of the Act and/or section 4975(c)(2) of the Code does not relieve a fiduciary or other party in interest or disqualified person from certain other provisions to which the exemption does not apply and the general fiduciary responsibility provisions of section 404 of the Act, which among other things require a fiduciary to discharge his duties respecting the plan solely in the interest of the participants and beneficiaries of the plan and in a prudent fashion in accordance with section 404(a)(1)(B) of the Act; nor does it affect the requirement of section 401(a) of the Code that the plan must operate for the exclusive benefit of the employees of the employer maintaining the plan and their beneficiaries; (2) These exemptions are supplemental to and not in derogation of, any other provisions of the Act and/or the Code, including statutory or administrative exemptions and transactional rules. Furthermore, the fact that a transaction is subject to an administrative or statutory exemption is not dispositive of whether the transaction is in fact a prohibited transaction; and (3) The availability of these exemptions is subject to the express condition that the material facts and representations contained in the application accurately describes all material terms of the transaction which is the subject of the exemption. Signed at Washington, DC, this 14th day of December, 2016. Lyssa E. Hall, Director of Exemption Determinations, Employee Benefits Security Administration, U.S. Department of Labor. [FR Doc. 2016-30566 Filed 12-21-16; 8:45 am] BILLING CODE 4510-29-P
![94028 Federal Register / Vol. 81, No. 246 / Thursday, December 22, 2016 / Notices
DEPARTMENT OF LABOR the type proposed to the Secretary of have been specifically designed to
Labor. permit plans to terminate their
Employee Benefits Security relationships in an orderly and cost
Administration Statutory Findings
effective fashion in the event of an
In accordance with section 408(a) of additional conviction or a determination
Exemptions From Certain Prohibited the Act and/or section 4975(c)(2) of the that it is otherwise prudent for a plan to
Transaction Restrictions Code and the procedures set forth in 29 terminate its relationship with an entity
CFR part 2570, subpart B (76 FR 66637, covered by the temporary exemption.
AGENCY:Employee Benefits Security 66644, October 27, 2011) 1 and based
Administration, Labor. upon the entire record, the Department Written Comments
ACTION: Grant of individual exemptions. makes the following findings: The Department invited all interested
(a) The exemption is administratively persons to submit written comments
SUMMARY: This document contains feasible; and/or requests for a public hearing
exemptions issued by the Department of (b) The exemption is in the interests with respect to the notice of proposed
Labor (the Department) from certain of of the plan and its participants and temporary exemption, published in the
the prohibited transaction restrictions of beneficiaries; and Federal Register at 81 FR 83336 on
the Employee Retirement Income (c) The exemption is protective of the November 21, 2016. All comments and
Security Act of 1974 (ERISA or the Act) rights of the participants and requests for a hearing were due by
and/or the Internal Revenue Code of beneficiaries of the plan. November 26, 2016. The Applicant
1986 (the Code). This notice includes Deutsche Investment Management submitted a comment to the Department
the following: 2016–13, Deutsche Americas Inc. (DIMA) and Certain during the comment period in
Investment Management Americas Inc. Current and Future Asset Management connection with the proposed
and Certain Current and Future Asset Affiliates of Deutsche Bank AG temporary exemption. The comment
Management Affiliates of Deutsche Bank (Collectively, the Applicant or the DB letter contained the Applicant’s request
AG, D–11856; 2016–14, Citigroup, Inc., for a number of revisions to the
QPAMs) Located in New York, New
D–11859; 2016–15, JPMorgan Chase & proposed exemption, and was further
York
Co., D–11861; 2016–16, Barclays Capital supplemented through additional
Inc., D–11862; and 2016–17, UBS Assets [Prohibited Transaction Exemption 2016–13; correspondence, as requested by the
Management; UBS Realty Investors LLC; Exemption Application No. D–11856] Department. After considering the
UBS Hedge Fund Solutions LLC; UBS Temporary Exemption comment letter, the Department
O’Conner LLC; and Certain Future determined that some, but not all, of the
On November 21, 2016, the requested revisions have merit, and has
Affiliates in UBS’s Asset Management Department of Labor (the Department)
and Wealth Management Americas revised the exemption in the manner
published a notice of proposed described below. All requested revisions
Divisions, D–11863. temporary exemption in the Federal and comments, accepted or omitted,
SUPPLEMENTARY INFORMATION: A notice Register at 81 FR 83336, proposing that will be reconsidered for purposes of the
was published in the Federal Register of certain entities with specified longer term relief proposed in the
the pendency before the Department of relationships to DSK or DB Group Federal Register at 81 FR 83400 on
a proposal to grant such exemption. The Services could continue to rely upon the November 21, 2016, in connection with
notice set forth a summary of facts and relief provided by PTE 84–14 (49 FR Exemption Application Number D–
representations contained in the 9494 (March 13, 1984), as corrected at 11908.
application for exemption and referred 50 FR 41430 (October 10, 1985), as
interested persons to the application for amended at 70 FR 49305 (August 23, Revision 1. Definition of the
a complete statement of the facts and 2005), and as amended at 75 FR 38837 Convictions
representations. The application has (July 6, 2010)), notwithstanding the Section II(a) of the proposed
been available for public inspection at Convictions. temporary exemption reads, in relevant
the Department in Washington, DC. The No relief from a violation of any other part, that ‘‘[f]or all purposes under this
notice also invited interested persons to law is provided by this temporary exemption, ‘conduct’ of any person or
submit comments on the requested exemption, including any criminal entity that is the ’subject of [a]
exemption to the Department. In conviction described in the notice of Conviction’ encompasses any conduct
addition the notice stated that any proposed temporary exemption. of Deutsche Bank and/or their
interested person might submit a Furthermore, the Department cautions personnel, that is described in the Plea
written request that a public hearing be that the relief in this temporary Agreement (including the Factual
held (where appropriate). The applicant exemption will terminate immediately Statement thereto), Court judgments
has represented that it has complied if, among other things, an entity within (including the judgment of the Seoul
with the requirements of the notification the Deutsche Bank corporate family is Central District Court), criminal
to interested persons. No requests for a convicted of a crime described in complaint documents from the
hearing were received by the Section I(g) of PTE 84–14 during the Financial Services Commission in
Department. Public comments were effective period of the temporary Korea, and other official regulatory or
received by the Department as described exemption. While such an entity could judicial factual findings that are a part
in the granted exemption. apply for a new exemption in that of this record.’’
sradovich on DSK3GMQ082PROD with NOTICES2
The notice of proposed exemption circumstance, the Department would The Applicant requests that the
was issued and the exemption is being not be obligated to grant that exemption. Department modify Section II(a) of the
granted solely by the Department The terms of this temporary exemption proposed temporary exemption, to
because, effective December 31, 1978, narrow the scope of activity that is
1 The Department has considered exemption
section 102 of Reorganization Plan No. considered to be the ‘‘conduct’’ of a
applications received prior to December 27, 2011
4 of 1978, 5 U.S.C. App. 1 (1996), under the exemption procedures set forth in 29 CFR
person or entity that is the subject of a
transferred the authority of the Secretary part 2570, subpart B (55 FR 32836, 32847, August Conviction. According to the Applicant,
of the Treasury to issue exemptions of 10, 1990). the definition as proposed may create
VerDate Sep<11>2014 18:52 Dec 21, 2016 Jkt 241001 PO 00000 Frm 00002 Fmt 4701 Sfmt 4703 E:\FR\FM\22DEN2.SGM 22DEN2](https://thefederalregister.org/doc/81_FR_94274/page/1.svg)
![Federal Register / Vol. 81, No. 246 / Thursday, December 22, 2016 / Notices 94029
undue uncertainty for the Applicant and contractual obligations described in and hold harmless the ERISA-covered
for plan fiduciaries and counterparties Section I(j)(1) through (7) apply only plan or IRA for any damages resulting
transacting with plans. Deutsche Bank with respect to any arrangement, from a violation of ERISA’s fiduciary
states that the language in Section II(a) agreement, or contract between a DB duties and of ERISA and the Code’s
expands the ‘‘conduct’’ that is QPAM and an ERISA-covered plan or prohibited transaction provisions, a
considered the subject of the Conviction IRA under which the DB QPAM breach of contract, or any claim arising
beyond that which is described as provides asset management or other out of the failure of such DB QPAM to
criminal in the Plea Agreement. discretionary fiduciary services in qualify for the exemptive relief provided
Moreover, Deutsche Bank suggests that reliance on PTE 84–14. The Department by PTE 84–14 as a result of a violation
the reference to ‘‘other official declines to make this revision. Often, of Section I(g) of PTE 84–14 other than
regulatory or judicial factual findings parties enter into arrangements with the Convictions.’’
that are a part of this record’’ is vague financial institutions in reliance on their The Department is also revising the
and could potentially refer to findings QPAM status, irrespective of whether notice requirement in paragraph (j) to
by regulators or in civil proceedings PTE 84–14 is strictly needed or in require that each DB QPAM will
involving the Applicant and disclosed circumstances where more than one provide a notice of its agreement under
to the Department. exemption may be available. The broad Section I(j) to each ERISA-covered plan
The Department concurs with this applicability of the conditions of and IRA for which a DB QPAM provides
comment, and has revised Section II(a) Section I(j) ensures that the parties’ asset management or other discretionary
as follows: ‘‘For all purposes under this reliance is not misplaced; avoids fiduciary services, and to provide that it
exemption, ‘conduct’ of any person or needless disputes over the particular must be completed within six (6)
entity that is the ’subject of [a] exemption relied upon by the QPAMs; months of the effective date of this
Conviction’ encompasses the factual and encourages a broad culture of temporary exemption.
allegations described in Paragraph 13 of compliance and accountability at the Revision 3. Restrictions on Withdrawals
the Plea Agreement filed in the District QPAMs, consistent with the rightful in Section I(j)
Court in Case Number 3:15–cr–00062– expectations of plans and IRAs that
RNC, and in the ‘Criminal Acts’ section engage in transactions with QPAMs. A Section I(j)(4) of the proposed
pertaining to ‘Defendant DSK’ in the broad application of Section I(j) is in the temporary exemption requires that the
Decision of the Seoul Central District interest of ERISA-covered plans and DB QPAMs must agree ‘‘(n)ot to restrict
Court.’’ The Department also deleted the IRAs and protective of their rights. The the ability of such ERISA-covered plan
parenthetical in paragraph I(a) regarding DB QPAMs should be held to a high or IRA to terminate or withdraw from its
the term ‘‘participate in’’ and reworded standard of integrity with respect to all arrangement with the DB QPAM
the ‘‘participate in’’ parenthetical in ERISA-covered plans and IRAs, and not (including any investment in a
paragraph I(c) to read: ‘‘(for purposes of just those with respect to which it relies separately managed account or pooled
this paragraph (c), ‘‘participated in’’ on PTE 84–14. fund subject to ERISA and managed by
includes approving or condoning the Secondly, the Applicant claims that such QPAM), with the exception of
misconduct underlying the the indemnification and hold harmless reasonable restrictions, appropriately
Conviction).’’ requirement in subparagraph (7) is disclosed in advance, that are
overly broad and does not impose any specifically designed to ensure equitable
Revision 2. Indemnification and Notice treatment of all investors in a pooled
limit on damages to be paid. Therefore,
Provisions in Section I(j). fund in the event such withdrawal or
the Applicant requests that scope of the
Section I(j) of the proposed temporary indemnification obligation in Section termination may have adverse
exemption provides that, ‘‘[e]ffective as I(j)(7) be narrowed by removing the consequences for all other investors as
of the effective date of this temporary phrase ‘‘any damages resulting from a a result of an actual lack of liquidity of
exemption, with respect to any violation of applicable laws, a breach of the underlying assets, provided that
arrangement, agreement, or contract contract, or any claim arising out of’’ such restrictions are applied
between a DB QPAM and an ERISA- and replacing it with ‘‘ the reasonable consistently and in like manner to all
covered plan or IRA for which a DB costs of terminating the investment such investors.’’
QPAM provides asset management or management agreement with the DB The Applicant requests that the
other discretionary fiduciary services, QPAM and the retention of a Department modify Section I(j)(4) to
each DB QPAM agrees’’ to comply with replacement manager arising from.’’ include additional exceptions under
certain obligations described in Sections The Department declines to make the which reasonable withdrawal
I(j)(1) through (7). Specifically, Section requested revision, as it would not be in restrictions on ERISA-covered plans and
I(j)(7) requires such DB QPAMs ‘‘[t]o the interest of or protective of the rights IRAs may be imposed. Furthermore, the
indemnify and hold harmless the of ERISA-covered plans and IRAs to Applicant requests that the withdrawal
ERISA-covered plan or IRA for any limit such plans’ contractual restrictions apply on a prospective basis
damages resulting from a violation of indemnification rights in the event that only, due to the difficulty of modifying
applicable laws, a breach of contract, or they have a reasonable basis to seek the terms of withdrawal in connection
any claim arising out of the failure of redress. However, the Department with prior investments in pooled funds
such DB QPAM to qualify for the agrees to modify Section I(j)(7) to clarify that may become subject to ERISA.
exemptive relief provided by PTE 84–14 that ‘‘applicable laws’’ refer to the The Department does not believe that
as a result of a violation of Section I(g) fiduciary duties of ERISA and the an open-ended exception under which
sradovich on DSK3GMQ082PROD with NOTICES2
of PTE 84–14 other than the prohibited transaction provisions of additional withdrawal restrictions may
Convictions.’’ ERISA and the Code, which are likewise be imposed on ERISA-covered plans
The Applicant requested that the required to be included in the Policies and IRAs invested in pooled funds is
Department modify the language of described in Section I(h) of this protective of the rights of participants
Section I(j), including Section I(j)(7), in exemption. and beneficiaries of those plans.
order to narrow the scope of the Therefore, Section I(j)(7) of the However, the Department has modified
contractual obligations in two respects. temporary exemption, as granted, Section I(j)(4) to make it clear that a
First, the Applicant requested that the requires a DB QPAM ‘‘[t]o indemnify ‘‘lack of liquidity’’ may include a range
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![94030 Federal Register / Vol. 81, No. 246 / Thursday, December 22, 2016 / Notices
of circumstances where reasonable the execution of block trades or as applicable with respect to such
restrictions are necessary to protect settlement of trades submitted by third ERISA-covered plan or IRA; to refrain
remaining investors in a pooled fund. parties that, unbeknownst to DSK, from engaging in prohibited transactions
Furthermore, the Department has involve ERISA-covered plans and IRAs. that are not otherwise exempt (and to
modified Section I(j)(4) in order to Furthermore, the Applicant requests promptly correct any inadvertent
clarify that the limitation of adverse that Section I(g) be modified so that, in prohibited transactions); and to comply
consequences to those resulting from a the event DSK or DB Group Services with the standards of prudence and
lack of liquidity, valuation issues, or establish their own retirement plan, loyalty set forth in section 404 of ERISA,
regulatory reasons, is only required with they will not be deemed to have as applicable, with respect to each such
respect to investments in a pooled fund violated this condition. ERISA-covered plan and IRA.’’
subject to ERISA entered into after the Based on these and similar concerns, Section II(b) of the final temporary
Conviction Date. In any such event, the the Department has revised Section I(g) exemption corrects the typo in ‘‘DB
restrictions must be reasonable and last to provide that ‘‘Other than with respect Group Services’’ in the proposed
no longer than reasonably necessary to to employee benefit plans maintained or temporary exemption. Section II(b) of
avoid the adverse consequences to sponsored for their own employees or the final temporary exemption correctly
investors in the fund. the employees of an affiliate, DSK and refers to section VI(d)(1) of PTE 84–14
Therefore, Section I(j)(4) of this DB Group Services will not act as in the definition of ‘‘affiliate.’’ The
temporary exemption, as modified, fiduciaries within the meaning of ERISA prefatory language and Section II(e) of
requires DB QPAMs: ‘‘Not to restrict the Section 3(21)(A)(i) or (iii), or Code the final temporary exemption correctly
ability of such ERISA-covered plan or Section 4975(e)(3)(A) or (C), with provides that ‘‘DB Group Services (UK)
IRA to terminate or withdraw from its respect to ERISA-covered plan and IRA Limited’’ is the full name of DB Group
arrangement with the DB QPAM with assets; in accordance with this Services. Section II(g) of the final
respect to any investment in a provision, DSK and DB Group Services temporary exemption correctly refers to
separately managed account or pooled will not be treated as violating the the ‘‘Agreed Statement of Fact’’ and ‘‘the
fund subject to ERISA and managed by conditions of this exemption solely charge brought’’ in connection with the
such QPAM, with the exception of because they acted as investment advice definition of ‘‘Plea Agreement,’’ and the
reasonable restrictions, appropriately fiduciaries within the meaning of ERISA phrase ‘‘related to the manipulation of
disclosed in advance, that are Section 3(21)(A)(ii), or Section the London Interbank Offered Rate
specifically designed to ensure equitable 4975(e)(3)(B) of the Code, or because DB (LIBOR)’’ has been struck from technical
treatment of all investors in a pooled Group Services employees may be description of the charge.
fund in the event such withdrawal or doublehatted, seconded, supervised or Finally, the Department clarifies that,
termination may have adverse otherwise subject to the control of a DB to the extent that the Training
consequences for all other investors. In QPAM, including in a discretionary requirements in Section I(h)(2) of the
connection with any such arrangements fiduciary capacity with respect to the temporary exemption and PTE 2016–12
involving investments in pooled funds DB QPAM clients.’’ are consistent, such provisions should
subject to ERISA entered into after the be harmonized so that the sequential
Revision 6. Technical Corrections and
U.S. Conviction Date, the adverse exemptions do not inadvertently require
consequences must relate to a lack of Clarifications
multiple trainings per year covering the
liquidity of the underlying assets, The Department made several
same material.
valuation issues, or regulatory reasons technical corrections and a clarification After giving full consideration to the
that prevent the fund from immediately to the proposed temporary exemption entire record, the Department has
redeeming an ERISA-covered plan’s or requested by the Applicant, that are decided to grant the temporary
IRA’s investment, and such restrictions described below: exemption. The complete application
must be applicable to all such investors The date of the Korean Conviction
file for the temporary exemption
and effective no longer than reasonably correctly provides that January 25, 2016
(Exemption Application No. D–11856),
necessary to avoid the adverse is the date of the Korean Conviction in
including all supplemental submissions
consequences.’’ the prefatory language of this final
received by the Department, is available
temporary exemption.
Revision 4. Modification of Section I(g) Section I(i)(8) of the final temporary for public inspection in the Public
Section I(g) of the proposed temporary exemption is revised to require that Disclosure Room of the Employee
exemption provides that, ‘‘DSK and DB ‘‘[t]he Audit Committee of Deutsche Benefits Security Administration, Room
Group Services will not provide Bank’s Supervisory Board is provided a N–1515, U.S. Department of Labor, 200
discretionary asset management services copy of each Audit Report; and a senior Constitution Avenue NW., Washington,
to ERISA-covered plans or IRAs, nor executive officer with a direct reporting DC 20210.
will otherwise act as a fiduciary with line to the highest ranking compliance For a more complete statement of the
respect to ERISA-covered plan and IRA officer of Deutsche Bank must review facts and representations supporting the
assets.’’ The Applicant requests that this the Audit Report for each DB QPAM Department’s decision to grant this
condition be modified in order to allow and must certify in writing, under Extension, refer to the notice of
DSK to act as a fiduciary by virtue of penalty of perjury, that such officer has proposed extension, published on
providing investment advice. The reviewed each Audit Report.’’ November 21, 2016, at 81 FR 8336.
Applicant states that personnel of DSK The Department is revising Section Temporary Exemption Operative
sradovich on DSK3GMQ082PROD with NOTICES2
may inadvertently become investment I(j)(1) of the proposed temporary Language
advice fiduciaries under Department exemption in order to clarify the
Regulation section 2510.3–21 in the obligations of DB QPAMs applicable Section I: Covered Transactions
event such personnel give advice in with respect to ERISA-covered plans Certain entities with specified
connection with the execution of a trade and IRAs. In this regard, Section I(j)(1) relationships to Deutsche Bank AG
that involves an ERISA-covered plan or of the final temporary exemption (hereinafter, the DB QPAMs, as further
IRA. According to the Applicant, this provides that each DB QPAM agrees defined in Section II(b)) will not be
situation may arise in connection with ‘‘[t]o comply with ERISA and the Code, precluded from relying on the
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![Federal Register / Vol. 81, No. 246 / Thursday, December 22, 2016 / Notices 94031
exemptive relief provided by Prohibited within the scope of relief provided by Labor, the Department of the Treasury,
Transaction Exemption (PTE) 84–14,2 an administrative or statutory the Department of Justice, and the
notwithstanding (1) the ‘‘Korean exemption; Pension Benefit Guaranty Corporation,
Conviction’’ against Deutsche Securities (e) Any failure of the DB QPAMs to on behalf of ERISA-covered plans or
Korea Co., a South Korean affiliate of satisfy Section I(g) of PTE 84–14 arose IRAs are materially accurate and
Deutsche Bank AG (hereinafter, DSK, as solely from the Convictions; complete, to the best of such QPAM’s
further defined in Section II(f)), entered (f) A DB QPAM did not exercise knowledge at that time;
on January 25, 2016; and (2) the ‘‘US authority over the assets of any plan (v) The DB QPAM does not make
Conviction’’ against DB Group Services subject to Part 4 of Title I of ERISA (an material misrepresentations or omit
(UK) Limited, an affiliate of Deutsche ERISA-covered plan) or section 4975 of material information in its
Bank based in the United Kingdom the Code (an IRA) in a manner that it communications with such regulators
(hereinafter, DB Group Services, as knew or should have known would: with respect to ERISA-covered plans or
further defined in Section II(e)), Further the criminal conduct that is the IRAs, or make material
scheduled to be entered on April 3, subject of the Convictions; or cause the misrepresentations or omit material
2017 (collectively, the Convictions, as QPAM, affiliates, or related parties to information in its communications with
further defined in Section II(a)),3 for a directly or indirectly profit from the ERISA-covered plan and IRA clients;
period of up to 12 months beginning on criminal conduct that is the subject of (vi) The DB QPAM complies with the
the U.S. Conviction Date (as further the Convictions; terms of this temporary exemption; and
defined in Section II(d)), provided that (g) Other than with respect to (vii) Any violation of, or failure to
the following conditions are satisfied: employee benefit plans maintained or comply with, an item in subparagraph
(a) The DB QPAMs (including their sponsored for their own employees or (ii) through (vi), is corrected promptly
officers, directors, agents other than the employees of an affiliate, DSK and upon discovery, and any such violation
Deutsche Bank, and employees of such DB Group Services will not act as or compliance failure not promptly
DB QPAMs) did not know of, have fiduciaries within the meaning of ERISA corrected is reported, upon the
reason to know of, or participate in the Section 3(21)(A)(i) or (iii), or Code discovery of such failure to promptly
criminal conduct of DSK and DB Group Section 4975(e)(3)(A) or (C), with correct, in writing, to appropriate
Services that is the subject of the respect to ERISA-covered plan and IRA corporate officers, the head of
Convictions; assets; in accordance with this compliance and the General Counsel (or
(b) The DB QPAMs (including their provision, DSK and DB Group Services their functional equivalent) of the
officers, directors, agents other than will not be treated as violating the relevant DB QPAM, the independent
Deutsche Bank, and employees of such conditions of this exemption solely auditor responsible for reviewing
DB QPAMs) did not receive direct because they acted as investment advice compliance with the Policies, and an
compensation, or knowingly receive fiduciaries within the meaning of ERISA appropriate fiduciary of any affected
indirect compensation, in connection Section 3(21)(A)(ii), or Section ERISA-covered plan or IRA where such
with the criminal conduct that is the 4975(e)(3)(B) of the Code, or because DB fiduciary is independent of Deutsche
subject of the Convictions; Group Services employees may be Bank; however, with respect to any
(c) The DB QPAMs will not employ or doublehatted, seconded, supervised or ERISA-covered plan or IRA sponsored
knowingly engage any of the individuals otherwise subject to the control of a DB by an ‘‘affiliate’’ (as defined in Section
that participated in the criminal QPAM, including in a discretionary VI(d) of PTE 84–14) of Deutsche Bank or
conduct that is the subject of the fiduciary capacity with respect to the beneficially owned by an employee of
Convictions (for purposes of this DB QPAM clients; Deutsche Bank or its affiliates, such
paragraph (c), ‘‘participated in’’ (h)(1) Each DB QPAM must fiduciary does not need to be
includes approving or condoning the immediately develop, implement, independent of Deutsche Bank. A DB
misconduct underlying the maintain, and follow written policies QPAM will not be treated as having
Convictions); and procedures (the Policies) requiring failed to develop, implement, maintain,
(d) A DB QPAM will not use its and reasonably designed to ensure that: or follow the Policies, provided that it
authority or influence to direct an (i) The asset management decisions of corrects any instance of noncompliance
‘‘investment fund’’ (as defined in the DB QPAM are conducted promptly when discovered or when it
Section VI(b) of PTE 84–14) that is independently of Deutsche Bank’s reasonably should have known of the
subject to ERISA or the Code and corporate management and business noncompliance (whichever is earlier),
managed by such DB QPAM to enter activities, including the corporate and provided that it adheres to the
into any transaction with DSK or DB management and business activities of reporting requirements set forth in this
Group Services, or engage DSK or DB DB Group Services and DSK; subparagraph (vii);
Group Services to provide any service to (ii) The DB QPAM fully complies (2) Each DB QPAM must immediately
such investment fund, for a direct or with ERISA’s fiduciary duties and with develop and implement a program of
indirect fee borne by such investment ERISA and the Code’s prohibited training (the Training), conducted at
fund, regardless of whether such transaction provisions, and does not least annually, for all relevant DB
transaction or service may otherwise be knowingly participate in any violations QPAM asset/portfolio management,
of these duties and provisions with trading, legal, compliance, and internal
2 49 FR 9494 (March 13, 1984), as corrected at 50
respect to ERISA-covered plans and audit personnel. The Training must be
FR 41430 (October 10, 1985), as amended at 70 FR IRAs; set forth in the Policies and at a
sradovich on DSK3GMQ082PROD with NOTICES2
49305 (August 23, 2005), and as amended at 75 FR minimum, cover the Policies, ERISA
38837 (July 6, 2010).
(iii) The DB QPAM does not
3 Section I(g) of PTE 84–14 generally provides knowingly participate in any other and Code compliance (including
that ‘‘[n]either the QPAM nor any affiliate thereof person’s violation of ERISA or the Code applicable fiduciary duties and the
. . . nor any owner . . . of a 5 percent or more with respect to ERISA-covered plans prohibited transaction provisions),
interest in the QPAM is a person who within the and IRAs; ethical conduct, the consequences for
10 years immediately preceding the transaction has
been either convicted or released from
(iv) Any filings or statements made by not complying with the conditions of
imprisonment, whichever is later, as a result of’’ the DB QPAM to regulators, including this temporary exemption (including
certain criminal activity therein described. but not limited to, the Department of any loss of exemptive relief provided
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![Federal Register / Vol. 81, No. 246 / Thursday, December 22, 2016 / Notices 94033
(j) As of the effective date of this designed to prevent generally immediately provides the Department
temporary exemption, with respect to recognized abusive investment practices any information requested by the
any arrangement, agreement, or contract or specifically designed to ensure Department, as permitted by law,
between a DB QPAM and an ERISA- equitable treatment of all investors in a regarding the agreement and/or the
covered plan or IRA for which a DB pooled fund in the event such conduct and allegations that led to the
QPAM provides asset management or withdrawal or termination may have agreements; and
other discretionary fiduciary services, adverse consequences for all other (o) A DB QPAM will not fail to meet
each DB QPAM agrees: investors, provided that such fees are the terms of this temporary exemption,
(1) To comply with ERISA and the applied consistently and in like manner solely because a different DB QPAM
Code, as applicable with respect to such to all such investors; fails to satisfy a condition for relief
ERISA-covered plan or IRA; to refrain (6) Not to include exculpatory under this temporary exemption
from engaging in prohibited transactions provisions disclaiming or otherwise described in Sections I(c), (d), (h), (i), (j),
that are not otherwise exempt (and to limiting liability of the DB QPAM for a (k), and (m).
promptly correct any inadvertent violation of such agreement’s terms,
prohibited transactions); and to comply except for liability caused by an error, Section II: Definitions
with the standards of prudence and misrepresentation, or misconduct of a (a) The term ‘‘Convictions’’ means (1)
loyalty set forth in section 404 of ERISA, plan fiduciary or other party hired by the judgment of conviction against DB
as applicable, with respect to each such the plan fiduciary who is independent Group Services, in Case 3:15-cr-00062–
ERISA-covered plan and IRA; of Deutsche Bank and its affiliates; and RNC to be entered in the United States
(2) Not to require (or otherwise cause) (7) To indemnify and hold harmless
District Court for the District of
the ERISA-covered plan or IRA to the ERISA-covered plan or IRA for any
Connecticut to a single count of wire
waive, limit, or qualify the liability of damages resulting from a violation of
ERISA’s fiduciary duties and of ERISA fraud, in violation of 18 U.S.C. § 1343,
the DB QPAM for violating ERISA or the
Code or engaging in prohibited and the Code’s prohibited transaction and (2) the judgment of conviction
transactions; provisions, a breach of contract, or any against DSK entered on January 25,
(3) Not to require the ERISA-covered claim arising out of the failure of such 2016, in Seoul Central District Court,
plan or IRA (or sponsor of such ERISA- DB QPAM to qualify for the exemptive relating to charges filed against DSK
covered plan or beneficial owner of relief provided by PTE 84–14 as a result under Articles 176, 443, and 448 of
such IRA) to indemnify the DB QPAM of a violation of Section I(g) of PTE 84– South Korea’s Financial Investment
for violating ERISA or engaging in 14 other than the Convictions; Services and Capital Markets Act for
prohibited transactions, except for Within six (6) months of the effective spot/futures-linked market price
violations or prohibited transactions date of this temporary exemption, each manipulation. For all purposes under
caused by an error, misrepresentation, DB QPAM will provide a notice of its this exemption, ‘‘conduct’’ of any
or misconduct of a plan fiduciary or agreement and obligations under this person or entity that is the ‘‘subject of
other party hired by the plan fiduciary Section I(j) to each ERISA-covered plan [a] Conviction’’ encompasses the factual
who is independent of Deutsche Bank; and IRA for which the DB QPAM allegations described in Paragraph 13 of
(4) Not to restrict the ability of such provides asset management or other the Plea Agreement filed in the District
ERISA-covered plan or IRA to terminate discretionary fiduciary services; Court in Case Number 3:15–cr–00062–
or withdraw from its arrangement with (k) The DB QPAMs comply with each RNC, and in the ‘‘Criminal Acts’’ section
the DB QPAM with respect to any condition of PTE 84–14, as amended, pertaining to ‘‘Defendant DSK’’ in the
investment in a separately managed with the sole exceptions of the Decision of the Seoul Central District
account or pooled fund subject to ERISA violations of Section I(g) of PTE 84–14 Court;
and managed by such QPAM, with the that are attributable to the Convictions; (b) The term ‘‘DB QPAM’’ means a
exception of reasonable restrictions, (l) Deutsche Bank disgorged all of its ‘‘qualified professional asset manager’’
appropriately disclosed in advance, that profits generated by the spot/futures- (as defined in section VI(a) 4 of PTE 84–
are specifically designed to ensure linked market manipulation activities of 14) that relies on the relief provided by
equitable treatment of all investors in a DSK personnel that led to the PTE 84–14 and with respect to which
pooled fund in the event such Conviction against DSK entered on DSK or DB Group Services is a current
withdrawal or termination may have January 25, 2016, in Seoul Central or future ‘‘affiliate’’ (as defined in
adverse consequences for all other District Court; section VI(d)(1) of PTE 84–14). For
investors. In connection with any such (m) Each DB QPAM will maintain purposes of this temporary exemption,
arrangements involving investments in records necessary to demonstrate that Deutsche Bank Securities, Inc. (DBSI),
pooled funds subject to ERISA entered the conditions of this temporary including all entities over which it
into after the U.S. Conviction Date, the exemption have been met, for six (6) exercises control; and Deutsche Bank
adverse consequences must relate to a years following the date of any AG, including all of its branches, are
lack of liquidity of the underlying transaction for which such DB QPAM excluded from the definition of a DB
assets, valuation issues, or regulatory relies upon the relief in the temporary QPAM;
reasons that prevent the fund from exemption; (c) The term ‘‘Deutsche Bank’’ means
immediately redeeming an ERISA- (n) During the effective period of this Deutsche Bank AG but, unless indicated
covered plan’s or IRA’s investment, and temporary exemption, Deutsche Bank: otherwise, does not include its
such restrictions must be applicable to (1) Immediately discloses to the subsidiaries or affiliates;
sradovich on DSK3GMQ082PROD with NOTICES2
all such investors and effective no Department any Deferred Prosecution
longer than reasonably necessary to Agreement (a DPA) or Non-Prosecution 4 In general terms, a QPAM is an independent
avoid the adverse consequences; Agreement (an NPA) that Deutsche Bank fiduciary that is a bank, savings and loan
(5) Not to impose any fees, penalties, or any of its affiliates enter into with the association, insurance company, or investment
or charges for such termination or U.S Department of Justice, to the extent adviser that meets certain equity or net worth
requirements and other licensure requirements and
withdrawal with the exception of such DPA or NPA involves conduct that has acknowledged in a written management
reasonable fees, appropriately disclosed described in Section I(g) of PTE 84–14 agreement that it is a fiduciary with respect to each
in advance, that are specifically or section 411 of ERISA; and (2) plan that has retained the QPAM.
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![94034 Federal Register / Vol. 81, No. 246 / Thursday, December 22, 2016 / Notices
(d) The term ‘‘U.S. Conviction Date’’ (March 13, 1984), as corrected at 50 FR Revision 1. Deletion of Reference to the
means the date that a judgment of 41430 (October 10, 1985), as amended at Markets and Securities Services
conviction against DB Group Services, 70 FR 49305 (August 23, 2005), and as Business of Citigroup in Section I(d) of
in Case 3:15–cr–00062–RNC, is entered amended at 75 FR 38837 (July 6, 2010)), the Proposed Exemption
in the United States District Court for notwithstanding the Conviction for a Section I(d) of the proposed
the District of Connecticut, currently period of up to twelve months temporary exemption provides that ‘‘[a]
scheduled for April 3, 2017; beginning on the Conviction Date. Citigroup Affiliated QPAM will not use
(e) The term ‘‘DB Group Services’’
No relief from a violation of any other its authority or influence to direct an
means DB Group Services (UK) Limited,
law is provided by this temporary ‘‘investment fund’’ (as defined in
an ‘‘affiliate’’ of Deutsche Bank (as
exemption, including any criminal Section VI(b) of PTE 84–14), that is
defined in Section VI(c) of PTE 84–14)
conviction described in the proposed subject to ERISA or the Code and
based in the United Kingdom;
(f) The term ‘‘DSK’’ means Deutsche temporary exemption. Furthermore, the managed by such Citigroup Affiliated
Securities Korea Co., a South Korean Department cautions that the relief in QPAM, to enter into any transaction
‘‘affiliate’’ of Deutsche Bank (as defined this temporary exemption will terminate with Citicorp or the Markets and
in Section VI(c) of PTE 84–14); immediately if, among other things, an Securities Services Business of
(g) The term ‘‘Plea Agreement’’ means entity within the Citigroup corporate Citigroup, or to engage Citicorp or the
the Plea Agreement (including the structure is convicted of a crime Markets and Securities Services
Agreed Statement of Fact), dated April described in Section I(g) of PTE 84–14 Business of Citigroup, to provide any
23, 2015, between the Antitrust Division (other than the Conviction) during the service to such investment fund, for a
and Fraud Section of the Criminal effective period of the temporary direct or indirect fee borne by such
Division of the U.S. Department of exemption. While such an entity could investment fund, regardless of whether
Justice (the DOJ) and DB Group Services apply for a new exemption in that such transaction or service may
resolving the charge brought by the DOJ circumstance, the Department would otherwise be within the scope of relief
in Case 3:15–cr–00062–RNC against DB provided by an administrative or
not be obligated to grant the exemption.
Group Services for wire fraud in statutory exemption[.]’’
The terms of this temporary exemption
violation of Title 18, United States The Applicant represents that a
have been specifically designed to
Code, Section 1343; and sudden cessation of services on
permit plans to terminate their December 15, 2016, by the Markets and
(h) The terms ‘‘ERISA-covered plan’’ relationships in an orderly and cost
and ‘‘IRA’’ mean, respectively, a plan Securities Services Business of
effective fashion in the event of an Citigroup to affected plans, such as
subject to Part 4 of Title I of ERISA and additional conviction or a determination
a plan subject to section 4975 of the agency securities lending services,
that it is otherwise prudent for a plan to would be disruptive to those plans. The
Code. terminate its relationship with an entity
Effective Date: This temporary Applicant seeks deletion of the
covered by the temporary exemption. condition’s reference to ‘‘the Markets
exemption will be effective for the
period beginning on the U.S. Conviction Written Comments and Securities Services Business of
Date, and ending on the earlier of the Citigroup.’’ The Department concurs
date that is twelve months following the The Department invited all interested with this comment, as has revised the
U.S. Conviction Date; or the effective persons to submit written comments condition accordingly. However, the
date of a final agency action made by and/or requests for a public hearing Department may reconsider making
the Department in connection with with respect to the notice of proposed such modification in connection with
Exemption Application No. D–11908, an temporary exemption, published in the its determination whether or not to
application for long-term exemptive Federal Register at 81 FR 83350 on grant relief in Exemption Application
relief for the covered transactions November 21, 2016. All comments and Number D–11909, the proposed five
described herein. requests for a hearing were due by year exemption published in the
FOR FURTHER INFORMATION CONTACT: Mr. November 28, 2016. The Department Federal Register at 81 FR 83416 on
Scott Ness of the Department, telephone received written comments from the November 21, 2016.
(202) 693–8561, Office of Exemption Applicant, the substance of which is Revision 2. Deletion of Reference to the
Determinations, Employee Benefits discussed below. Markets and Securities Services
Security Administration, U.S. During the comment period, the Business of Citigroup in Section I(g) of
Department of Labor (this is not a toll- Applicant submitted a request for the the Proposed Exemption
free number). Department to make a number of Section I(g) of the proposed temporary
Citigroup, Inc. (Citigroup or the revisions to the proposed exemption. exemption provides that ‘‘Citicorp and
Applicant) Located in New York, New Thereafter, the Applicant submitted the Markets and Securities Services
York additional information in support of its Business of Citigroup have not provided
request. After considering these nor will provide discretionary asset
[Prohibited Transaction Exemption 2016–14;
Exemption Application No. D–11859]
submissions, the Department has management services to ERISA-covered
determined to make certain of the plans or IRAs, or otherwise act as a
Temporary Exemption revisions sought by the Applicant. The fiduciary with respect to ERISA-covered
On November 21, 2016, the revisions declined by the Department, plan or IRA assets[.]’’
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Department of Labor (the Department) as well as the revisions described below, The Applicant represents that the
published a notice of proposed will be reconsidered as part of the Markets and Securities Services
temporary exemption in the Federal review process for the proposed five Business of Citigroup may be deemed to
Register at 81 FR 83350, proposing that year exemption published in the involve fiduciary conduct. The
certain entities with specified Federal Register at 81 FR 83416 on Applicant states that requiring those
relationships to Citigroup could November 21, 2016, in connection with services to be terminated suddenly
continue to rely upon the relief Exemption Application Number D– would be disruptive to affected plans.
provided by PTE 84–14 (49 FR 9494 11909. The Applicant therefore seeks deletion
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![Federal Register / Vol. 81, No. 246 / Thursday, December 22, 2016 / Notices 94035
of the condition’s reference to ‘‘the pair exchanged in the Foreign Exchange Connecticut (the District Court) (Case
Markets and Securities Services (FX) Spot Market.’’ Number 3:15–cr–78–SRU). For all
Business of Citigroup.’’ Furthermore, Section II(e) of the purposes under this exemption,
The Department concurs with this proposed temporary exemption ‘‘conduct’’ of any person or entity that
comment, and has revised the condition provides that, in relevant part, ‘‘[t]he is the ‘‘subject of [a] Conviction’’
in this final temporary exemption, in term ‘Conviction’ means the judgment encompasses the conduct described in
order to avoid a significant disruption of conviction against Citigroup for Paragraph 4(g)–(i) of the Plea Agreement
and damages to affected ERISA-covered violation of the Sherman Antitrust Act, filed in the District Court in Case
plans and IRAs. Section I(g) of the final 15 U.S.C. 1, which is scheduled to be Number 3:15–cr–78–SRU.’’
exemption now provides that ‘‘Other entered in the District Court for the Furthermore, the Department deleted
than with respect to employee benefit District of Connecticut (the District the parenthetical in paragraph (a)
plans maintained or sponsored for their Court) (Case Number 3:15–cr–78–SRU), regarding the term ‘‘participate in’’ and
own employees or the employees of an in connection with Citigroup, through reworded the ‘‘participate in’’
affiliate, Citicorp will not act as a one of its euro/U.S. dollar (EUR/USD) parenthetical in paragraph (c) to read:
fiduciary within the meaning of ERISA traders, entering into and engaging in a ‘‘(for purposes of this paragraph (c),
Section 3(21)(A)(i) or (iii), or Code combination and conspiracy to fix, ‘‘participated in’’ includes approving or
Section 4975(e)(3)(A) or (C), with stabilize, maintain, increase or decrease condoning the misconduct underlying
respect to ERISA-covered plan and IRA the price of, and rig bids and offers for, the Conviction).’’
assets; in accordance with this the EUR/USD currency pair exchanged
provision, Citicorp will not be treated as in the FX spot market by agreeing to Revision 5. The Policies and Training in
violating the conditions of this eliminate competition in the purchase Section I(h)
exemption solely because they acted as and sale of the EUR/USD currency pair Section I(h)(1) of the proposed
investment advice fiduciaries within the in the United States and elsewhere. For temporary exemption requires each
meaning of ERISA Section 3(21)(A)(ii) all purposes under this temporary Citigroup Affiliated QPAM to ‘‘develop,
or Section 4975(e)(3)(B) of the Code.’’ exemption, if granted, ‘‘conduct’’ of any implement, maintain and follow’’ the
person or entity that is the ‘‘subject of written policies and procedures (the
Revision 3. Deletion of Reference to the Policies) described in Section I(h)(1)(i)
[a] Conviction’’ encompasses any
Markets and Securities Services through (vii). Furthermore, Section
conduct of Citigroup and/or their
Business of Citigroup in Section I(h) of I(h)(2) requires each Citigroup Affiliated
personnel, that is described in the Plea
the Proposed Exemption. QPAM to ‘‘develop and implement a
Agreement, (including the Factual
Section I(h)(1)(i) provides that ‘‘each Statement), and other official regulatory program of training (the Training)’’
Citigroup Affiliated QPAM must or judicial factual findings that are a described therein. In its comment and in
develop, implement, maintain, and part of this record[.]’’ subsequent conversations with the
follow written policies (the Policies) The Applicant requests that the Department, the Applicant requested
requiring and reasonably designed to Department modify the prefatory that Sections I(h)(1) and (2) be modified
ensure that:’’ . . . ‘‘(i) The asset language in Section I and the language to allow the Citigroup Affiliated QPAMs
management decisions of the Citigroup of Section II(e) of the proposed a period of up to six (6) months
Affiliated QPAM are conducted temporary exemption, to more precisely following the date of the Conviction to
independently of the corporate define the term ‘‘Conviction’’ and meet these requirements. The
management and business activities of narrow the scope of activity that is Department concurs with the
Citigroup, including the Markets and considered to be the ‘‘conduct’’ of a Applicant’s request. Therefore, in the
Securities Services Business of person or entity that is the subject of a final temporary exemption, the
Citigroup[.]’’ Conviction. According to the Applicant, Department has modified Section I(h)(1)
The Applicant seeks deletion of the the reference to Conviction in the and (2) to provide that, respectively,
condition’s reference to the Markets and prefatory language of Section I may be ‘‘Within six (6) months of the
Securities Services Business of confusing for plans and their Conviction Date, each Citigroup
Citigroup, in order to avoid disruption counterparties. Furthermore, the Affiliated QPAM must develop,
to affected plans and IRAs. The Applicant states that the proposed implement, maintain, and follow
Department concurs with this comment, definition of Conviction in Section II(e) written policies and procedures (the
and has revised the condition expands the ‘‘conduct’’ that is Policies) . . .’’ and ‘‘Within six (6)
accordingly. considered the subject of the Conviction months of the Conviction Date, each
beyond that which is described as Citigroup Affiliated QPAM must
Revision 4. References to the Conviction
criminal in the Plea Agreement, and the develop and implement a program of
The prefatory language of Section I of reference to ‘‘other official regulatory or training (the Training) . . . .’’
the proposed temporary exemption judicial factual findings that are a part
provides that ‘‘the Citigroup Affiliated of this record’’ is vague and could Revision 6. Indemnification Provision in
QPAMs and the Citigroup Related potentially refer to findings by Section I(i)
QPAMs, as defined in Sections II(a) and regulators or in civil proceedings Section I(i) of the proposed temporary
II(b), respectively, will not be precluded involving the Applicant and disclosed exemption provides that, ‘‘(1) Effective
from relying on the exemptive relief to the Department. as of the effective date of this temporary
provided by Prohibited Transaction The Department concurs with the exemption, with respect to any
sradovich on DSK3GMQ082PROD with NOTICES2
Class Exemption 84–14 (PTE 84–14 or Applicant’s comment and has modified arrangement, agreement, or contract
the QPAM Exemption), notwithstanding the language in the final temporary between a Citigroup Affiliated QPAM
the judgment of conviction against exemption to provide that ‘‘[t]he term and an ERISA-covered plan or IRA for
Citicorp (the Conviction, as defined in ‘‘Conviction’’ means the judgment of which such Citigroup Affiliated QPAM
Section II(c)), for engaging in a conviction against Citicorp for violation provides asset management or other
conspiracy to: (1) Fix the price of, or (2) of the Sherman Antitrust Act, 15 U.S.C. discretionary fiduciary services, each
eliminate competition in the purchase 1, which is scheduled to be entered in Citigroup Affiliated QPAM agrees: ‘‘. . .
or sale of the euro/U.S. dollar currency the District Court for the District of ‘‘(vii) To indemnify and hold harmless
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![94036 Federal Register / Vol. 81, No. 246 / Thursday, December 22, 2016 / Notices
the ERISA-covered plan or IRA for any ERISA’s fiduciary duties and with withdraw from its arrangement with the
damages resulting from a violation of ERISA and the Code’s prohibited Citigroup Affiliated QPAM with respect
applicable laws, a breach of contract, or transaction provisions, is included in to any investment in a separately
any claim arising out of the failure of the Policies required under the managed account or pooled fund subject
such Citigroup Affiliated QPAM to exemption. Therefore, Section I(i)(1)(vii) to ERISA and managed by such QPAM,
qualify for the exemptive relief provided of the temporary exemption, as granted, with the exception of reasonable
by PTE 84–14 as a result of a violation requires a Citigroup Affiliated QPAM restrictions, appropriately disclosed in
of Section I(g) of PTE 84–14 other than ‘‘[t]o indemnify and hold harmless the advance, that are specifically designed
the Conviction.’’ ERISA-covered plan or IRA for any to ensure equitable treatment of all
The Applicant requested that the damages resulting from a violation of investors in a pooled fund in the event
Department modify the language of ERISA’s fiduciary duties and of ERISA such withdrawal or termination may
Sections I(i)(1) and I(i)(1)(vii) in order to and the Code’s prohibited transaction have adverse consequences for all other
narrow the scope of the contractual provisions, a breach of contract, or any investors. In connection with any such
obligations in two respects. First, the claim arising out of the failure of such arrangements involving investments in
Applicant requested that the contractual Citigroup Affiliated QPAM to qualify for pooled funds subject to ERISA entered
obligations described in Section I(i) the exemptive relief provided by PTE into after the Conviction Date, the
apply only with respect to any 84–14 as a result of a violation of adverse consequences must relate to a
arrangement, agreement, or contract Section I(g) of PTE 84–14 other than the lack of liquidity of the pooled fund’s
between a Citigroup Affiliated QPAM Conviction.’’ underlying assets, valuation issues, or
and an ERISA-covered plan or IRA regulatory reasons that prevent the fund
under which the Citigroup Affiliated Revision 7. Restrictions on Withdrawals
in Section I(i) from immediately redeeming an ERISA-
QPAM provides asset management or covered plan’s or IRA’s investment, and
other discretionary fiduciary services in Section I(i)(1)(iv) of the proposed such restrictions are applicable to all
reliance on PTE 84–14. The Department temporary exemption requires that the such investors and effective no longer
declines to make this revision. Often, Citigroup Affiliated QPAMs must agree than reasonably necessary to avoid the
parties enter into arrangements with ‘‘[n]ot to restrict the ability of such adverse consequences.’’
financial institutions in reliance on their ERISA-covered plan or IRA to terminate
QPAM status, irrespective of whether or withdraw from its arrangement with Revision 8. Definition of Citigroup
PTE 84–14 is strictly needed or in the Citigroup Affiliated QPAM Affiliated QPAM in Section II(a)
circumstances where more than one (including any investment in a Section II(a) of the proposed
exemption may be available. The broad separately managed account or pooled temporary exemption precludes Citicorp
applicability of the conditions of fund subject to ERISA and managed by and ‘‘Citigroup’s Markets and Securities
Section I(i) ensures that the parties’ such QPAM), with the exception of Services Business’’ from acting as
reliance is not misplaced; avoids reasonable restrictions, appropriately QPAMs. The Department is removing
needless disputes over the particular disclosed in advance, that are this reference to ‘‘Citigroup’s Markets
exemption relied upon by the QPAMs; specifically designed to ensure equitable and Securities Services Business’’ for
and encourages a broad culture of treatment of all investors in a pooled purposes of this one year exemption.
compliance and accountability at the fund in the event such withdrawal or
QPAMs, consistent with the rightful termination may have adverse Revision 9. New Definition of Citicorp
expectations of plans and IRAs that consequences for all other investors as The Applicant requested in its
engage in transactions with QPAMs. A a result of an actual lack of liquidity of comment that the Department adds a
broad application of Section I(i) is in the the underlying assets, provided that definition for the term ‘‘Citicorp.’’ The
interest of ERISA-covered plans and such restrictions are applied Department concurs and has modified
IRAs and protective of their rights. The consistently and in like manner to all the temporary exemption by adding
Citigroup Affiliated QPAMs should be such investors.’’ Section II(g), a definition for the term
held to a high standard of integrity with The Department has modified Section ‘‘Citicorp,’’ which is defined as ‘‘a
respect to all ERISA-covered plans and I(i)(1)(iv) to make it clear that a lack of financial services holding company
IRAs, and not just those with respect to liquidity may include similar organized and existing under the laws of
which it relies on PTE 84–14. circumstances where reasonable Delaware and does not include any
Secondly, the Applicant requested restrictions are necessary to protect subsidiaries or other affiliates.’’
that Section I(i)(1)(vii) be deleted, or remaining investors in a pooled fund.
alternatively, that the provision should Furthermore, the Department has Revision 10. Technical Corrections
be modified by adding the phrase ‘‘To modified Section I(i)(4) in order to The Department has made certain
the extent required by applicable law,’’ clarify that the limitation of adverse technical corrections to the proposed
at the beginning of the paragraph. The consequences to those resulting from a temporary exemption requested by the
Applicant claims that the lack of liquidity, valuation issues, or Applicant that are described below:
indemnification and hold harmless regulatory reasons, is only required with The references to the definition of
requirement in subparagraph (vii) respect to investments in a pooled fund ‘‘Conviction’’ and ‘‘Conviction Date’’ in
would unnecessarily create confusion subject to ERISA entered into after the the prefatory language of Section I are
and likely extensive litigation in the Conviction Date. In any such event, the changed to correctly read ‘‘the
event of a claim by a plan or IRA for restrictions must be reasonable and last Conviction, as defined in Section II(e)’’
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indemnity. The Department declines to no longer than reasonably necessary to and ‘‘the Conviction Date, as defined in
make the requested revision, but agrees avoid the adverse consequences to Section II(f).’’
to modify the section to make it clear investors in the fund. After giving full consideration to the
that the ‘‘applicable laws’’ referred to in Therefore, Section I(i)(1)(iv) of the record, the Department has decided to
Section I(i)(1)(vii) refer to the fiduciary final temporary exemption requires grant the temporary exemption, as
duties of ERISA and the prohibited Citigroup Affiliated QPAMs ‘‘Not to described above. The complete
transaction provisions of ERISA and the restrict the ability of such ERISA- application file (Application No. D–
Code. The requirement to comply with covered plan or IRA to terminate or 11859) is available for public inspection
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![Federal Register / Vol. 81, No. 246 / Thursday, December 22, 2016 / Notices 94037
in the Public Disclosure Room of the Citigroup Related QPAMs (including implement, maintain, and follow
Employee Benefits Security their officers, directors, agents other written policies and procedures (the
Administration, Room N–1515, U.S. than Citicorp, and employees of such Policies) requiring and reasonably
Department of Labor, 200 Constitution Citigroup Affiliated QPAMs), did not designed to ensure that:
Avenue NW., Washington, DC 20210. receive direct compensation, or (i) The asset management decisions of
For a more complete statement of the knowingly receive indirect the Citigroup Affiliated QPAM are
facts and representations supporting the compensation in connection with the conducted independently of the
Department’s decision to grant this criminal conduct that is the subject of corporate management and business
temporary exemption, refer to the notice the Conviction; activities of Citigroup;
of proposed temporary exemption (c) The Citigroup Affiliated QPAMs (ii) The Citigroup Affiliated QPAM
published on November 21, 2016 at 81 will not employ or knowingly engage fully complies with ERISA’s fiduciary
FR 83350. any of the individuals that participated duties, and with ERISA and the Code’s
in the criminal conduct that is the prohibited transaction provisions, and
Temporary Exemption Operative does not knowingly participate in any
subject of the Conviction (for purposes
Language violations of these duties and provisions
of this paragraph (c), ‘‘participated in’’
Section I: Covered Transactions includes approving or condoning the with respect to ERISA-covered plans
Certain entities with specified misconduct underlying the Conviction); and IRAs;
(d) A Citigroup Affiliated QPAM will (iii) The Citigroup Affiliated QPAM
relationships to Citigroup (hereinafter,
not use its authority or influence to does not knowingly participate in any
the Citigroup Affiliated QPAMs and the
direct an ‘‘investment fund’’ (as defined other person’s violation of ERISA or the
Citigroup Related QPAMs, as defined in
in Section VI(b) of PTE 84–14), that is Code with respect to ERISA-covered
Sections II(a) and II(b), respectively)
subject to ERISA or the Code and plans and IRAs;
will not be precluded from relying on
managed by such Citigroup Affiliated (iv) Any filings or statements made by
the exemptive relief provided by
QPAM, to enter into any transaction the Citigroup Affiliated QPAM to
Prohibited Transaction Class Exemption
with Citicorp, or to engage Citicorp to regulators, including but not limited to,
84–14 (PTE 84–14 or the QPAM
provide any service to such investment the Department, the Department of the
Exemption),5 notwithstanding the
fund, for a direct or indirect fee borne Treasury, the Department of Justice, and
judgment of conviction against Citicorp
by such investment fund, regardless of the Pension Benefit Guaranty
(the Conviction, as defined in Section
whether such transaction or service may Corporation, on behalf of ERISA-
II(e)),6 for a period of up to twelve
otherwise be within the scope of relief covered plans or IRAs, are materially
months beginning on the date of the
provided by an administrative or accurate and complete, to the best of
Conviction (the Conviction Date, as
statutory exemption; such QPAM’s knowledge at that time;
defined in Section II(f)), provided that (v) The Citigroup Affiliated QPAM
(e) Any failure of a Citigroup
the following conditions are satisfied: does not make material
(a) Other than a single individual who Affiliated QPAM or a Citigroup Related
QPAM to satisfy Section I(g) of PTE 84– misrepresentations or omit material
worked for a non-fiduciary business
14 arose solely from the Conviction; information in its communications with
within Citigroup’s Markets and
(f) A Citigroup Affiliated QPAM or a such regulators with respect to ERISA-
Securities Services Business, and who
Citigroup Related QPAM did not covered plans or IRAs, or make material
had no responsibility for, and exercised
exercise authority over the assets of any misrepresentations or omit material
no authority in connection with, the
plan subject to Part 4 of Title I of ERISA information in its communications with
management of plan assets, the
(an ERISA-covered plan) or section 4975 ERISA-covered plans and IRA clients;
Citigroup Affiliated QPAMs and the (vi) The Citigroup Affiliated QPAM
of the Code (an IRA) in a manner that
Citigroup Related QPAMs (including complies with the terms of this
it knew or should have known would:
their officers, directors, agents other temporary exemption; and
further the criminal conduct that is the
than Citicorp, and employees of such (vii) Any violation of, or failure to
subject of the Conviction; or cause the
Citigroup QPAMs) did not know of, comply with an item in subparagraphs
Citigroup Affiliated QPAM or the
have reason to know of, or participate in (ii) through (vi), is corrected promptly
Citigroup Related QPAM or its affiliates
the criminal conduct of Citicorp that is upon discovery, and any such violation
or related parties to directly or
the subject of the Conviction; or compliance failure not promptly
(b) Other than a single individual who indirectly profit from the criminal
conduct that is the subject of the corrected is reported, upon discovering
worked for a non-fiduciary business the failure to promptly correct, in
within Citigroup’s Markets and Conviction;
(g) Other than with respect to writing, to appropriate corporate
Securities Services Business, and who officers, the head of compliance, and the
employee benefit plans maintained or
had no responsibility for, and exercised General Counsel (or their functional
sponsored for their own employees or
no authority in connection with, the equivalent) of the relevant Citigroup
the employees of an affiliate, Citicorp
management of plan assets, the Affiliated QPAM, and an appropriate
will not act as a fiduciary within the
Citigroup Affiliated QPAMs and the fiduciary of any affected ERISA-covered
meaning of ERISA Section 3(21)(A)(i) or
5 49 FR 9494 (March 13, 1984), as corrected at 50
(iii), or Code Section 4975(e)(3)(A) or plan or IRA, where such fiduciary is
FR 41430 (October 10, 1985), as amended at 70 FR (C), with respect to ERISA-covered plan independent of Citigroup; however,
49305 (August 23, 2005), and as amended at 75 FR and IRA assets; in accordance with this with respect to any ERISA-covered plan
38837 (July 6, 2010). provision, Citicorp will not be treated as or IRA sponsored by an ‘‘affiliate’’ (as
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6 Section I(g) of PTE 84–14 generally provides
violating the conditions of this defined in Section VI(d) of PTE 84–14)
that ‘‘[n]either the QPAM nor any affiliate thereof
. . . nor any owner . . . of a 5 percent or more exemption solely because they acted as of Citigroup or beneficially owned by an
interest in the QPAM is a person who within the investment advice fiduciaries within the employee of Citigroup or its affiliates,
10 years immediately preceding the transaction has meaning of ERISA Section 3(21)(A)(ii) such fiduciary does not need to be
been either convicted or released from or Section 4975(e)(3)(B) of the Code; independent of Citigroup. A Citigroup
imprisonment, whichever is later, as a result of’’
certain felonies including violation of the Sherman
(h)(1) Within six (6) months of the Affiliated QPAM will not be treated as
Antitrust Act, Title 15 United States Code, Section Conviction Date, each Citigroup having failed to develop, implement,
1. Affiliated QPAM must develop, maintain, or follow the Policies,
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(as defined in section VI(a) of PTE 84– certain entities with specified During the comment period, the
14) that relies on the relief provided by relationships to JPMC could continue to Applicant submitted a request for the
PTE 84–14, and with respect to which rely upon the relief provided by PTE Department to make a number of
Citigroup owns a direct or indirect five 84–14 (49 FR 9494, March 13, 1984), as revisions to the proposed exemption.
percent or more interest, but with corrected at 50 FR 41430 (October 10, Thereafter, the Applicant submitted
respect to which Citigroup is not an 1985), as amended at 70 FR 49305 additional information in support of its
‘‘affiliate’’ (as defined in Section (August 23, 2005), and as amended at 75 request. After considering these
VI(d)(1) of PTE 84–14); FR 38837 (July 6, 2010), submissions, the Department has
(c) The terms ‘‘ERISA-covered plan’’ notwithstanding the Conviction for a determined to make certain of the
and ‘‘IRA’’ mean, respectively, a plan period of up to twelve (12) months revisions sought by the Applicant. The
subject to Part 4 of Title I of ERISA and beginning on the Conviction Date. revisions declined by the Department,
a plan subject to section 4975 of the The Department is today granting this as well as the revisions described below,
Code; temporary exemption in order to protect will be reconsidered for purposes of the
(d) The term ‘‘Citigroup’’ means ERISA-covered plans and IRAs from longer term relief published in the
Citigroup, Inc., the parent entity, and certain costs and/or investment losses Federal Register on November 21, 2016
does not include any subsidiaries or that may arise to the extent entities with (81 FR 83372), in connection with
other affiliates; a corporate relationship to JPMC lose Exemption Application Number D–
(e) The term ‘‘Conviction’’ means the their ability to rely on PTE 84–14 as of 11906.
judgment of conviction against Citicorp the Conviction Date, as described in the Revision 1. Deletion of Reference to
for violation of the Sherman Antitrust proposed temporary exemption. The Investment Banking Division of
Act, 15 U.S.C. 1, which is scheduled to Department has proposed longer-term JPMorgan Chase Bank in Section I(d) of
be entered in the District Court for the relief for the JPMC Affiliated QPAMs the Proposed Exemption
District of Connecticut (the District and the JPMC Related QPAMs to rely on
Court) (Case Number 3:15–cr–78–SRU). Section I(d) of the proposed
PTE 84–14 notwithstanding the
For all purposes under this exemption, temporary exemption provides that ‘‘[a]
Conviction. The relief in this temporary
‘‘conduct’’ of any person or entity that JPMC Affiliated QPAM will not use its
exemption provides the Department
is the ‘‘subject of [a] Conviction’’ authority or influence to direct an
more time to consider whether longer-
encompasses the conduct described in ‘‘investment fund’’ (as defined in
term relief is warranted. Section VI(b) of PTE 84–14), that is
Paragraph 4(g)–(i) of the Plea Agreement No relief from a violation of any other
filed in the District Court in Case subject to ERISA or the Code and
law is provided by this temporary managed by such JPMC Affiliated
Number 3:15–cr–78–SRU; exemption, including any criminal
(f) The term ‘‘Conviction Date’’ means QPAM, to enter into any transaction
conviction described in the proposed with JPMC or the Investment Banking
the date that a judgment of Conviction
temporary exemption. Furthermore, the Division of JPMorgan Chase Bank, or
against Citicorp is entered by the
Department cautions that the relief in engage JPMC or the Investment Banking
District Court in connection with the
this temporary exemption will terminate Division of JPMorgan Chase Bank to
Conviction; and
(g) The term ‘‘Citicorp’’ means immediately if, among other things, an provide any service to such investment
Citicorp, a financial services holding entity within the JPMC corporate fund, for a direct or indirect fee borne
company organized and existing under structure is convicted of a crime by such investment fund, regardless of
the laws of Delaware and does not described in Section I(g) of PTE 84–14 whether such transaction or service may
include any subsidiaries or other (other than the Conviction) during the otherwise be within the scope of relief
affiliates. effective period of the temporary provided by an administrative or
Effective Date: This temporary exemption. While such an entity could statutory exemption[.]’’
exemption is effective for the period apply for a new exemption in that The Applicant requests that the
beginning on the Conviction Date until circumstance, the Department would Department modify this condition. The
the earlier of: (1) The date that is twelve not be obligated to grant the exemption. Applicant represents that, as of the date
(12) months following the Conviction The terms of this temporary exemption of the exemption application, JPMC
Date; or (2) the effective date of final have been specifically designed to Affiliated QPAMs managed
agency action made by the Department permit plans to terminate their approximately $100 billion in plan
in connection with an application for relationships in an orderly and cost assets through collective investment
long-term exemptive relief for the effective fashion in the event of an trusts that use the custody and
covered transactions described herein. additional conviction or a determination administration services of JPMC’s
FOR FURTHER INFORMATION CONTACT: Mr.
that it is otherwise prudent for a plan to Corporate and Investment Banking line
Joseph Brennan of the Department, terminate its relationship with an entity of business (CIB), operating through
telephone (202) 693–8456. (This is not covered by the temporary exemption. JPMorgan Chase Bank. Similarly, the
a toll-free number.) Written Comments Applicant explains that certain plans
managed by JPMC Affiliated QPAMs
JPMorgan Chase & Co. (JPMC or the The Department invited all interested through separate accounts have
Applicant) Located in New York, New persons to submit written comments independently selected CIB (operating
York and/or requests for a public hearing through JPMorgan Chase Bank) as their
[Prohibited Transaction Exemption 2016–15; with respect to the notice of proposed trustee and/or custodian, and
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Exemption Application No. D–11861] temporary exemption, published in the transactions directed by JPMC Affiliated
Federal Register at 81 FR 83357 on QPAMs on behalf of such plans would
Temporary Exemption November 21, 2016. All comments and necessarily require the trustee/custodian
On November 21, 2016, the requests for a hearing were due by to provide services for a direct or
Department of Labor (the Department) November 28, 2016. The Department indirect fee.
published a notice of proposed received written comments from the According to the Applicant, the
temporary exemption in the Federal Applicant, the substance of which is wording of this proposed condition is
Register at 81 FR 83357, proposing that discussed below. tantamount to a denial, because of all of
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![94040 Federal Register / Vol. 81, No. 246 / Thursday, December 22, 2016 / Notices
the services CIB provides to client must develop, implement, maintain, connection with JPMC, through one of
accounts. The Applicant states that the and follow written policies and its euro/U.S. dollar (EUR/USD) traders,
custody and administration services procedures (the Policies) requiring and entering into and engaging in a
provided are fundamental to the reasonably designed to ensure that: (i) combination and conspiracy to fix,
operation of the investment funds it [T]he asset management decisions of the stabilize, maintain, increase or decrease
manages. The proposed condition JPMC Affiliated QPAM are conducted the price of, and rig bids and offers for,
would make it impossible for JPMorgan independently of the corporate the EUR/USD currency pair exchanged
Chase Bank’s collective investment management and business activities of in the FX spot market by agreeing to
trusts to function, or for plans managed JPMC, including the Investment eliminate competition in the purchase
by a JPMC Affiliated QPAM to select Banking Division of JPMorgan Chase and sale of the EUR/USD currency pair
JPMorgan Chase Bank as their trustee or Bank[.]’’ in the United States and elsewhere. For
custodian. The Department concurs In its comment and in subsequent all purposes under this temporary
with this comment, and has revised this communications with the Department, exemption, if granted, ‘‘conduct’’ of any
condition, accordingly. the Applicant requests that Sections person or entity that is the ‘‘subject of
I(h)(1) and (2) be modified to allow the [a] Conviction’’ encompasses any
Revision 2. Deletion of Reference to the JPMC Affiliated QPAMs a period of up conduct of JPMC and/or their personnel,
Investment Banking Division of to six months following the Conviction that is described in the Plea Agreement,
JPMorgan Chase Bank in Section I(g) of to meet these requirements. The (including the Factual Statement), and
the Proposed Exemption Department concurs with the other official regulatory or judicial
Section I(g) of the proposed temporary Applicant’s request. Therefore, in the factual findings that are a part of this
exemption provides that ‘‘JPMC and the final temporary exemption, the record[.]’’
Investment Banking Division of Department has modified Section I(h)(1) The Applicant requests that the
JPMorgan Chase Bank will not provide and (2) to provide that, respectively, Department modify the prefatory
discretionary asset management services ‘‘Within six (6) months of the language in Section I and Section II(e)
to ERISA-covered plans or IRAs, and Conviction, each JPMC Affiliated QPAM of the proposed temporary exemption,
will not otherwise act as a fiduciary must develop, implement, maintain, to more precisely define the term
with respect to ERISA-covered plan and and follow written policies and ‘‘Conviction’’ and narrow the scope of
IRA assets[.]’’ procedures (the Policies) . . .’’ and activity that is considered to be the
The Applicant represents that the CIB, ‘‘Within six (6) months of the ‘‘conduct’’ of a person or entity that is
operating through JPMorgan Chase Conviction, each JPMC Affiliated QPAM the subject of a Conviction. According
Bank, manages over $7 billion of cash must develop and implement a program to the Applicant, the reference to
collateral for plans within its securities of training (the Training). . . .’’ Conviction in the prefatory language of
lending agent business in reliance on The Applicant also seeks deletion of Section I of the proposed temporary
PTE 84–14. If JPMorgan Chase Bank the condition’s reference to the exemption contains inaccurate and
cannot continue to provide these Investment Banking Division of editorial language and may be confusing
fiduciary services, the Applicant JPMorgan Chase Bank for the reasons for plans and their counterparties.
explains that the exemption would stated above. The Department concurs Furthermore, the Applicant states that
provide no relief for plans that use the with this comment, and has revised the the proposed definition of Conviction in
Bank as a securities lending agent. condition, accordingly. Section II(e) is also inaccurate and
The Department concurs with this contains an overly broad definition of
comment, and has revised the condition Revision 4. References to the Conviction
the ‘‘conduct’’ that is subject to the
in this final temporary exemption. The prefatory language of Section I of Conviction. In this regard, the Applicant
Therefore, Section I(g) of the final the proposed temporary exemption states that the language in Section II(e)
exemption provides that ‘‘JPMC will not provides that ‘‘the JPMC Affiliated expands the ‘‘conduct’’ that is
act as a fiduciary within the meaning of QPAMs and the JPMC Related QPAMs, considered the subject of the Conviction
ERISA Section 3(21)(A)(i) or (iii), or as defined in Sections II(a) and II(b), beyond that which is described as
Code Section 4975(e)(3)(A) or (C), with respectively, will not be precluded from criminal in the Plea Agreement, and the
respect to ERISA-covered plan and IRA relying on the exemptive relief provided reference to ‘‘other official regulatory or
assets; in accordance with this by Prohibited Transaction Class judicial factual findings that are a part
provision, JPMC will not be treated as Exemption 84–14 (PTE 84–14 or the of this record’’ is vague and could
violating the conditions of this QPAM Exemption), notwithstanding the potentially refer to findings by
exemption solely because it acted an judgment of conviction against JPMC regulators or in civil proceedings
investment advice fiduciary within the (the Conviction), as defined in Section involving the Applicant and disclosed
meaning of ERISA Section 3(21)(A)(ii) II(c)), for engaging in a conspiracy to: (1) to the Department.
or Section 4975(e)(3)(B) of the Code.’’ Fix the price of, or (2) eliminate The Department concurs with the
The condition is also being revised to competition in the purchase or sale of Applicant’s comment and has modified
allow JPMC to act as a fiduciary with the euro/U.S. dollar currency pair the language in the final temporary
respect to employee benefit plans exchanged in the Foreign Exchange (FX) exemption to provide that ‘‘[t]he term
maintained or sponsored for their own Spot Market.’’ ‘Conviction’ means the judgment of
employees or the employees of an Furthermore, Section II(e) of the conviction against JPMC for violation of
affiliate. proposed temporary exemption the Sherman Antitrust Act, 15 U.S.C. 1,
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provides that, in relevant part, ‘‘[t]he which is scheduled to be entered in the
Revision 3. Deletion of Reference to the term ’Conviction’ means the judgment District Court for the District of
Investment Banking Division of of conviction against JPMC for violation Connecticut (the District Court)(Case
JPMorgan Chase Bank in Section I(h) of of the Sherman Antitrust Act, 15 U.S.C. Number 3:15–cr–79–SRU). For all
the Proposed Exemption 1, which is scheduled to be entered in purposes under this exemption,
Section I(h)(1)(i) provides that the District Court for the District of ‘‘conduct’’ of any person or entity that
‘‘[w]ithin four (4) months of the Connecticut (the District Court)(Case is the ‘‘subject of [a] Conviction’’
Conviction, each JPMC Affiliated QPAM Number 3:15–cr–79–SRU), in encompasses the conduct described in
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![Federal Register / Vol. 81, No. 246 / Thursday, December 22, 2016 / Notices 94041
Paragraph 4(g)–(i) of the Plea Agreement Section I(g) of PTE 84–14 other than the ‘‘applicable laws’’ referred to in Section
filed in the District Court in Case Conviction[.]’’ I(i)(1)(vii) pertain to the fiduciary duties
Number 3:15–cr–79–SRU.’’ The Applicant requested that the of ERISA and the prohibited transaction
Furthermore, the Department deleted Department modify the language of provisions of ERISA and the Code. The
the parenthetical in paragraph (a) Sections I(i)(1) and I(i)(1)(vii) in order to requirement to comply with ERISA’s
regarding the term ‘‘participate in’’ and narrow the scope of the contractual fiduciary duties and with ERISA and the
reworded the ‘‘participate in’’ obligations in two respects. First, the Code’s prohibited transaction provisions
parenthetical in paragraph (c) to read: Applicant requested that the contractual is included in the Policies required
‘‘(For purposes of this paragraph (c), obligations described in Section I(i) under the exemption. Therefore, Section
‘‘participated in’’ includes approving or apply only with respect to any
I(i)(1)(vii) of the temporary exemption,
condoning the misconduct underlying arrangement, agreement, or contract
as granted, requires a JPMC Affiliated
the Conviction).’’ between a JPMC Affiliated QPAM and
an ERISA-covered plan or IRA under QPAM ‘‘[t]o indemnify and hold
Revision 5. The Policies and Training in which the JPMC Affiliated QPAM harmless the ERISA-covered plan or IRA
Section I(h) provides asset management or other for any damages resulting from a
Section I(h)(1) of the proposed discretionary fiduciary services in violation of ERISA’s fiduciary duties
temporary exemption requires each reliance on PTE 84–14. and of ERISA and the Code’s prohibited
JPMC Affiliated QPAM to ‘‘develop, The Department declines to make this transaction provisions, a breach of
implement, maintain and follow’’ the revision. Often, parties enter into contract, or any claim arising out of the
written policies and procedures (the arrangements with financial institutions failure of such JPMC Affiliated QPAM to
Policies) described in Section I(h)(1)(i) in reliance on their QPAM status, qualify for the exemptive relief provided
through (vii). Furthermore, Section irrespective of whether PTE 84–14 is by PTE 84–14 as a result of a violation
I(h)(2) requires each JPMC Affiliated strictly needed or in circumstances of Section I(g) of PTE 84–14 other than
QPAM to develop and implement a where more than one exemption may be the Conviction.’’
program of training (the Training)’’ available. The broad applicability of the
described therein. In its comment and in conditions of Section I(i) ensures that Revision 7. Restrictions on Withdrawals
subsequent conversations with the the parties’ reliance is not misplaced; in Section I(i)
Department, the Applicant requested avoids needless disputes over the Section I(i)(1)(4) of the proposed
that Sections I(h)(1) and (2) be modified particular exemption relied upon by the
temporary exemption requires that the
to allow the JPMC Affiliated QPAMs a QPAMs; and encourages a broad culture
JPMC Affiliated QPAMs must agree
period of up to six (6) months following of compliance and accountability at the
the date of the Conviction to meet these QPAMs, consistent with the rightful ‘‘[n]ot to restrict the ability of such
requirements. The Department concurs expectations of plans and IRAs that ERISA-covered plan or IRA to terminate
with the Applicant’s request. Therefore, engage in transactions with QPAMs. A or withdraw from its arrangement with
in the final temporary exemption, the broad application of Section I(i) is in the the JPMC Affiliated QPAM (including
Department has modified Section I(h)(1) interest of ERISA-covered plans and any investment in a separately managed
and (2) to provide that, respectively, IRAs and protective of their rights. The account or pooled fund subject to ERISA
’’Within six (6) months of the JPMC Affiliated QPAMs should be held and managed by such QPAM), with the
Conviction Date, each JPMC Affiliated to a high standard of integrity with exception of reasonable restrictions,
QPAM must develop, implement, respect to all ERISA-covered plans and appropriately disclosed in advance, that
maintain, and follow written policies IRAs, and not just those with respect to are specifically designed to ensure
and procedures (the Policies) . . .’’ and which it relies on PTE 84–14. equitable treatment of all investors in a
’’Within six (6) months of the Secondly, the Applicant requested pooled fund in the event such
Conviction Date, each JPMC Affiliated that Section I(i)(1)(vii) be deleted, or withdrawal or termination may have
QPAM must develop and implement a alternatively, that the Department tie the adverse consequences for all other
program of training (the provision to damages with a proximate investors as a result of the actual lack of
Training). . . .’’ causal connection to relevant conduct of liquidity of the underlying assets,
the asset manager. The Applicant provided that such restrictions are
Revision 6. Indemnification Provision in represents that the indemnification and
Section I(i) applied consistently and in like manner
hold harmless requirement in to all such investors.’’ The Department
Section I(i)(1) of the proposed subparagraph (vii) would operate in an has modified Section I(i)(4) to make it
temporary exemption provides that unfair manner because it is not limited clear that a lack of liquidity may include
‘‘[e]ffective as of the effective date of to clients who are harmed through a
a range of similar circumstances where
this temporary exemption, with respect direct, causal link to the loss of
to any arrangement, agreement, or reasonable restrictions are necessary to
exemptive relief provided by PTE 84–
contract between a JPMC Affiliated protect remaining investors in a pooled
14. According to the Applicant, the
QPAM and an ERISA-covered plan or fund. Furthermore, the Department has
provision appears to allow ERISA-
IRA for which a JPMC Affiliated QPAM covered plans and IRAs to seek to modified Section I(i)(4) in order to
provides asset management or other recover damages: (a) That arise from clarify that the limitation of adverse
discretionary fiduciary services, each violations and breaches by third parties, consequences to those resulting from a
JPMC Affiliated QPAM agrees: . . . (b) that arise only tenuously from the lack of liquidity, valuation issues, or
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‘‘(vii) [t]o indemnify and hold harmless manager’s conduct, (c) that may be regulatory reasons, is only required with
the ERISA-covered plan or IRA for any grossly unreasonable in amount, (d) for respect to investments in a pooled fund
damages resulting from a violation of claims without merit, and (e) for claims subject to ERISA entered into after the
applicable laws, a breach of contract, or in connection with accounts that do not Conviction Date. In any such event, the
any claim arising out of the failure of rely on PTE 84–14. restrictions must be reasonable and last
such JPMC Affiliated QPAM to qualify The Department declines to make the no longer than reasonably necessary to
for the exemptive relief provided by requested revision, but agrees to modify avoid the adverse consequences to
PTE 84–14 as a result of a violation of the section to make it clear that the investors in the fund.
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Revision 8. Scope of Contractual Temporary Exemption Operative an ‘‘investment fund’’ (as defined in
Obligations in Section I(i) Language Section VI(b) of PTE 84–14), that is
The Department is revising the notice subject to ERISA or the Code and
Section I: Covered Transactions
requirement in Section I(i)(2) to require managed by such JPMC Affiliated
Certain entities with specified QPAM, to enter into any transaction
that each JPMC Affiliated QPAM will
relationships to JPMC (hereinafter, the with JPMC, or to engage JPMC to
provide a notice of its agreement to each
JPMC Affiliated QPAMs and the JPMC provide any service to such investment
ERISA-covered plan and IRA for which
Related QPAMs, as defined in Sections fund, for a direct or indirect fee borne
a JPMC Affiliated QPAM provides asset
II(a) and II(b), respectively) will not be by such investment fund, regardless of
management or other discretionary
precluded from relying on the whether such transaction or service may
fiduciary services, and to provide that
exemptive relief provided by Prohibited otherwise be within the scope of relief
such notice must be completed within
Transaction Class Exemption 84–14 provided by an administrative or
six (6) months of the effective date of
(PTE 84–14 or the QPAM Exemption),8 statutory exemption;
this temporary exemption. (e) Any failure of a JPMC Affiliated
notwithstanding the judgment of
Revision 9. Definition of ‘‘JPMC conviction against JPMC (the QPAM or a JPMC Related QPAM to
Affiliated QPAM’’ in Section II(a) Conviction, as defined in Section II(e)),9 satisfy Section I(g) of PTE 84–14 arose
for a period of up to twelve (12) months solely from the Conviction;
Section II(a) of the proposed (f) A JPMC Affiliated QPAM or a
temporary exemption precludes JPMC, beginning on the date of the Conviction
(the Conviction Date, as defined in JPMC Related QPAM did not exercise
the parent entity, from acting as a authority over the assets of any plan
QPAM. The last sentence of this Section II(f)), provided that the
following conditions are satisfied: subject to Part 4 of Title I of ERISA (an
condition also erroneously states that ERISA-covered plan) or section 4975 of
(a) Other than a single individual who
JPMC is the ‘‘division’’ [that was] the Code (an IRA) in a manner that it
worked for a non-fiduciary business
directly implicated by the conduct that knew or should have known would:
within JPMorgan Chase Bank and who
is the subject of the Conviction.’’ The Further the criminal conduct that is the
had no responsibility for, and exercised
Applicant represents that JPMC is not a subject of the Conviction; or cause the
no authority in connection with, the
‘‘division,’’ but the parent company of JPMC Affiliated QPAM the JPMC
management of plan assets, the JPMC
an affiliated group. In response to this Related QPAM or its affiliates or related
Affiliated QPAMs and the JPMC Related
comment, the Department is removing parties to directly or indirectly profit
QPAMs (including their officers,
this reference. from the criminal conduct that is the
directors, agents other than JPMC, and
Revision 10. Revision of Section I(b) of employees of such JPMC QPAMs) did subject of the Conviction;
the Proposed Exemption not know of, have reason to know of, or (g) Other than with respect to
participate in the criminal conduct of employee benefit plans maintained or
The applicant represents that Section sponsored for their own employees or
I(b) of the proposed exemption is not JPMC that is the subject of the
Conviction; the employees of an affiliate, JPMC will
workable, as an individual can only not act as a fiduciary within the
receive compensation if the entity he (b) The JPMC Affiliated QPAMs and
the JPMC Related QPAMs (including meaning of section 3(21)(A)(i) or (iii) of
works for receives compensation. The ERISA, or section 4975(e)(3)(A) and (C)
Department has revised this condition their officers, directors, agents other
than JPMC, and employees of such of the Code, with respect to ERISA-
to read, ‘‘The JPMC Affiliated QPAMs covered plan and IRA assets; in
and the JPMC Related QPAMs JPMC QPAMs) did not receive direct
compensation, or knowingly receive accordance with this provision, JPMC
(including their officers, directors, will not be treated as violating the
agents other than JPMC, and employees indirect compensation in connection
with the criminal conduct that is the conditions of this exemption solely
of such JPMC QPAMs) did not receive because it acted as an investment advice
direct compensation, or knowingly subject of the Conviction, other than a
non-fiduciary line of business within fiduciary within the meaning of section
receive indirect compensation in 3(21)(A)(ii) or section 4975(e)(3)(B) of
connection with the criminal conduct JPMorgan Chase Bank;
(c) The JPMC Affiliated QPAMs will the Code;
that is the subject of the Conviction, (h)(1) Within six (6) months of the
other than a non-fiduciary line of not employ or knowingly engage any of
the individuals that participated in the Conviction Date, each JPMC Affiliated
business within JPMorgan Chase QPAM must develop, implement,
Bank.’’. criminal conduct that is the subject of
the Conviction (for purposes of this maintain, and follow written policies
After giving full consideration to the and procedures (the Policies) requiring
record, the Department has decided to paragraph (c), ‘‘participated in’’
includes approving or condoning the and reasonably designed to ensure that:
grant the temporary exemption, as (i) The asset management decisions of
described above. The complete misconduct underlying the Conviction);
(d) A JPMC Affiliated QPAM will not the JPMC Affiliated QPAM are
application file (Application No. D– conducted independently of the
11861) is available for public inspection use its authority or influence to direct
corporate management and business
in the Public Disclosure Room of the 8 49 FR 9494 (March 13, 1984), as corrected at 50 activities of JPMC;
Employee Benefits Security FR 41430 (October 10, 1985), as amended at 70 FR (ii) The JPMC Affiliated QPAM fully
Administration, Room N–1515, U.S. 49305 (August 23, 2005), and as amended at 75 FR complies with ERISA’s fiduciary duties,
Department of Labor, 200 Constitution 38837 (July 6, 2010). and with ERISA and the Code’s
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9 Section I(g) of PTE 84–14 generally provides
Avenue NW., Washington, DC 20210. prohibited transaction provisions, and
that ‘‘[n]either the QPAM nor any affiliate thereof
For a more complete statement of the . . . nor any owner . . . of a 5 percent or more does not knowingly participate in any
facts and representations supporting the interest in the QPAM is a person who within the violations of these duties and provisions
Department’s decision to grant this 10 years immediately preceding the transaction has with respect to ERISA-covered plans
temporary exemption, refer to the notice been either convicted or released from and IRAs;
imprisonment, whichever is later, as a result of’’
of proposed temporary exemption certain felonies including violation of the Sherman
(iii) The JPMC Affiliated QPAM does
published on November 21, 2016 at 81 Antitrust Act, Title 15 United States Code, Section not knowingly participate in any other
FR 83357. 1. person’s violation of ERISA or the Code
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![94044 Federal Register / Vol. 81, No. 246 / Thursday, December 22, 2016 / Notices
Department of Justice to the extent such filed in the District Court in Case terminate its relationship with an entity
DPA or NPA involves conduct described Number 3:15–cr–79–SRU; and covered by the temporary exemption.
in Section I(g) of PTE 84–14 or section (f) The term ‘‘Conviction Date’’ means
the date that a judgment of Conviction Written Comments
411 of ERISA; and
(2) Immediately provides the against JPMC is entered by the District The Department invited all interested
Department any information requested Court in connection with the persons to submit written comments
by the Department, as permitted by law, Conviction. and/or requests for a public hearing
regarding the agreement and/or the Effective Date: This temporary with respect to the notice of proposed
conduct and allegations that led to the exemption is effective for the period temporary exemption, published in the
agreement; and beginning on the Conviction Date until Federal Register on November 21, 2016.
(m) A JPMC Affiliated QPAM or a the earlier of: (1) The date that is twelve All comments and requests for a hearing
JPMC Related QPAM will not fail to (12) months following the Conviction were due by November 28, 2016. The
meet the terms of this temporary Date; or (2) the effective date of final Department received written comments
exemption solely because a different agency action made by the Department from the Applicant, the substance of
JPMC Affiliated QPAM or JPMC Related in connection with an application for which is discussed below.
QPAM fails to satisfy a condition for long-term exemptive relief for the During the comment period, the
relief under this temporary exemption, covered transactions described herein.
Applicant submitted a request for the
described in Sections I(c), (d), (h), (i), (j), FOR FURTHER INFORMATION CONTACT: Mr. Department to make a number of
and (k). Joseph Brennan of the Department, revisions to the proposed exemption.
telephone (202) 693–8456. (This is not Thereafter, the Applicant submitted
Section II: Definitions a toll-free number.) additional information in support of its
(a) The term ‘‘JPMC Affiliated QPAM’’ request. After considering these
Barclays Capital Inc. (BCI or the
means a ‘‘qualified professional asset submissions, the Department has
Applicant) Located in New York, New
manager’’ (as defined in Section VI(a) 10 determined to make certain of the
York
of PTE 84–14) that relies on the relief revisions sought by the Applicant. The
provided by PTE 84–14 and with [Prohibited Transaction Exemption 2016–16;
Exemption Application No. D–11862] revisions declined by the Department,
respect to which JPMC is a current or as well as the revisions described below,
future ‘‘affiliate’’ (as defined in Section Temporary Exemption will be reconsidered for purposes of the
VI(d)(1) of PTE 84–14). The term ‘‘JPMC longer term relief published in the
On November 21, 2016, the
Affiliated QPAM’’ excludes JPMC; Federal Register on November 21, 2016
(b) The term ‘‘JPMC Related QPAM’’ Department of Labor (the Department)
published a notice of proposed (81 FR 83427) in connection with
means any current or future ‘‘qualified Exemption Application Number D–
professional asset manager’’ (as defined temporary exemption in the Federal
Register at 81 FR 83365, proposing that 11910.
in section VI(a) of PTE 84–14) that relies
certain entities with specified Revision 1. Replacement of Reference to
on the relief provided by PTE 84–14,
relationships to BCI could continue to BCI With BPLC in Section I of the
and with respect to which JPMC owns
rely upon the relief provided by PTE Proposed Exemption
a direct or indirect five percent or more
84–14 (49 FR 9494, March 13, 1984), as
interest, but with respect to which JPMC The Applicant states that BCI is
corrected at 50 FR 41430 (October 10,
is not an ‘‘affiliate’’ (as defined in identified in certain conditions in
1985), as amended at 70 FR 49305
Section VI(d)(1) of PTE 84–14). Section I, notwithstanding that BPLC is
(c) The terms ‘‘ERISA-covered plan’’ (August 23, 2005), and as amended at 75
FR 38837 (July 6, 2010), the entity that pled guilty to the felony.
and ‘‘IRA’’ mean, respectively, a plan
notwithstanding the Conviction for a Accordingly, the Applicant requests
subject to Part 4 of Title I of ERISA and
period of up to twelve months removal of the reference to ‘‘BCI’’ in
a plan subject to section 4975 of the
beginning on the date of the Conviction. those conditions. The Department
Code;
No relief from a violation of any other concurs with this comment, and has
(d) The term ‘‘JPMC’’ means JPMorgan
law is provided by this temporary substituted BPLC, the entity convicted
Chase and Co., the parent entity, and
exemption, including any criminal of the conduct underlying the
does not include any subsidiaries or
conviction described in the proposed Conviction, for BCI, where applicable in
other affiliates;
temporary exemption. Furthermore, the Section I of the exemption. The
(e) The term ‘‘Conviction’’ means the
Department cautions that the relief in Department has also revised Section I(a)
judgment of conviction against JPMC for
this temporary exemption will terminate to include ‘‘Barclays Related QPAMs,’’
violation of the Sherman Antitrust Act,
immediately if, among other things, an thus requiring that these QPAMs did not
15 U.S.C. 1, which is scheduled to be
entity within the BPLC corporate know of, have reason to know of, or
entered in the District Court for the
structure is convicted of a crime participate in the criminal conduct of
District of Connecticut (the District
described in Section I(g) of PTE 84–14 BPLC that is the subject of the
Court) (Case Number 3:15–cr–79–SRU).
(other than the Conviction) during the Conviction.
For all purposes under this exemption,
effective period of the temporary
‘‘conduct’’ of any person or entity that Revision 2. Correction to Section I(f) of
exemption. While such an entity could
is the ‘‘subject of [a] Conviction’’ the Proposed Exemption
apply for a new exemption in that
encompasses the conduct described in
circumstance, the Department would Section I(f) contains an unintended
Paragraph 4(g)–(i) of the Plea Agreement
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not be obligated to grant the exemption. error and is revised to read as follows:
10 In general terms, a QPAM is an independent The terms of this temporary exemption ‘‘A Barclays Affiliated QPAM or a
fiduciary that is a bank, savings and loan have been specifically designed to Barclays Related QPAM did not exercise
association, insurance company, or investment permit plans to terminate their authority over the assets of any plan
adviser that meets certain equity or net worth relationships in an orderly and cost subject to Part 4 of Title I of ERISA (an
requirements and other licensure requirements, and
has acknowledged in a written management
effective fashion in the event of an ERISA-covered plan) or section 4975 of
agreement that it is a fiduciary with respect to each additional conviction or a determination the Code (an IRA) in a manner that it
plan that has retained the QPAM. that it is otherwise prudent for a plan to knew or should have known would:
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Further the criminal conduct that is the (the Conviction, as defined in Section subject of a ‘‘Conviction’’ encompasses
subject of the Conviction. . . .’’ II(c)), for engaging in a conspiracy to: (1) the conduct described in Paragraph 4(g)-
Fix the price of, or (2) eliminate (j) of the Plea Agreement filed in the
Revision 3. Clarification to Section I(g)
competition in the purchase or sale of District Court in Case Number 3:15–cr–
of the Proposed Exemption
the euro/U.S. dollar currency pair 00077–SRU–1. The Department also
The Department is clarifying Section exchanged in the Foreign Exchange (FX) deleted the parenthetical in paragraph
I(g) to provide that BPLC may not act as Spot Market. This temporary exemption I(a) regarding the term ‘‘participate in’’
a fiduciary within the meaning of ERISA will be effective for a period of up to and reworded the ‘‘participate in’’
Section 3(21)(A)(i) or (iii), or Code twelve (12) months beginning on the parenthetical in paragraph I(c) to read:
Section 4975(e)(3)(A) and (C), with Conviction Date (as defined in Section ‘‘(for purposes of this paragraph (c),
respect to ERISA-covered plan and IRA II(e) . . .’’ ‘‘participated in’’ includes approving or
assets; however, in accordance with that Furthermore, Section II(e) of the condoning the misconduct underlying
provision, BPLC will not be treated as proposed exemption provides, in the Conviction).’’
violating the conditions of this relevant part, that ‘‘[t]he term Further, the Applicant notes that the
exemption solely because they acted as ‘‘Conviction’’ means the judgment of term ‘‘Conviction’’ and ‘‘Conviction
investment advice fiduciaries within the conviction against BPLC for violation of Date’’ are defined in Sections II(e) and
meaning of ERISA Section 3(21)(A)(ii) the Sherman Antitrust Act, 15 U.S.C. II(f), respectively, rather than II(c) and
or Section 4975(e)(3)(b) of the Code. The § 1, which is scheduled to be entered in II(e). The Department has corrected this
condition is also being revised to allow the District Court for the District of inadvertent error.
BPLC to act as a fiduciary with respect Connecticut (the District Court)(Case
to employee benefit plans maintained or Number 3:15–cr–00077–SRU–1), in Revision 6. Indemnification Provision in
sponsored for their own employees or connection with BPLC, through certain Section I(i)
the employees of an affiliate. of its euro/U.S. dollar (EUR/USD) Section I(i) of the proposed temporary
traders, entering into and engaging in a exemption provides that ‘‘[e]ffective as
Revision 4. Modification to the
combination and conspiracy to fix, of the effective date of this temporary
Timeframe for BCI To Provide Notice of
stabilize, maintain, increase or decrease exemption, with respect to any
Its Obligations Under Section I(i)
the price of, and rig bids and offers for, arrangement, agreement, or contract
The last paragraph of Section (I) of the the EUR/USD currency pair exchanged
proposed exemption provides that between a Barclays Affiliated QPAM
in the FX spot market by agreeing to and an ERISA-covered plan or IRA for
‘‘[w]ithin four (4) months of the date of eliminate competition in the purchase
the Conviction, each Barclays Affiliated which such Barclays Affiliated QPAM
and sale of the EUR/USD currency pair provides asset management or other
QPAM will provide a notice of its in the United States and elsewhere. For
obligations under this Section I(i) to discretionary fiduciary services, each
all purposes under this temporary Barclays Affiliated QPAM agrees:’’ . . .
each ERISA-covered plan and IRA for exemption, ‘‘conduct’’ of any person or
which a Barclays Affiliated QPAM ‘‘(7) To indemnify and hold harmless
entity that is the ‘‘subject of [a]
provides asset management or other the ERISA-covered plan or IRA for any
Conviction’’ encompasses any conduct
discretionary fiduciary services.’’ damages resulting from a violation of
of BPLC and/or their personnel, that is
The Applicant states that BCI and its applicable laws, a breach of contract, or
described in the Plea Agreement,
affiliates do not currently provide asset any claim arising out of the failure of
(including the Factual Statement), and
management or other discretionary such Barclays Affiliated QPAM to
other official regulatory or judicial
fiduciary services to ERISA-covered qualify for the exemptive relief provided
factual findings that are a part of this
plans or IRAs, and the four-month by PTE 84–14 as a result of a violation
record[.]’’
notice period has no purpose. Therefore The Applicant requests that the of Section I(g) of PTE 84–14 other than
the Applicant requests that this Department modify the prefatory the Conviction.’’
provision be modified to reflect that language in Section I and Section II(e) The Applicant believes that this
Barclays Affiliated QPAMs would in the of the proposed temporary exemption, provision may operate in a manner that
future be required to provide notice to more precisely define the term is fundamentally unfair as it is not
prior to an engagement with an ERISA- ‘‘Conviction.’’ According to the limited to clients who are harmed
covered plan or IRA subject to this Applicant, the reference to Conviction through a direct, causal link to the loss
temporary exemption, consistent with in the prefatory language of Section I of of the exemptive relief provided by PTE
Sections I(h)(1) and I(h)(2). The the proposed temporary exemption is 84–14. The Applicant states that the
Department concurs with this comment incomplete and inexact and may create condition appears to allow plans and
and has revised the condition confusion on whether the exemption IRAs to seek to recover damages (i) that
accordingly. condition is met, leading to possible arise from violations and breaches by
disputes with counterparties to the third parties, (ii) that arise only
Revision 5. References to the Conviction detriment of plans. tenuously from the manager’s conduct,
The prefatory language of Section I of The Department concurs with the (iii) that may be grossly unreasonable in
proposed temporary exemption Applicant’s comment and has modified amount, (iv) for claims without merit
provides that ‘‘[i]f the proposed the relevant language in the final and (v) for claims in connection with
temporary exemption is granted, the temporary exemption to provide that the accounts that do not rely on the relief
Barclays Affiliated QPAMs and the term ‘‘Conviction’’ means the judgment provided by PTE 84–14.
sradovich on DSK3GMQ082PROD with NOTICES2
Barclays Related QPAMs, as defined in of conviction against BPLC for violation Accordingly, the Applicant requests
Sections II(a) and II(b), respectively, will of the Sherman Antitrust Act, 15 U.S.C. that that the Department delete this
not be precluded from relying on the 1, which is scheduled to be entered in condition or, in the alternative,
exemptive relief provided by Prohibited the District Court for the District of expressly tie the requirement to
Transaction Class Exemption 84–14 Connecticut (the District Court)(Case damages with a proximate causal
(PTE 84–14 or the QPAM Exemption), Number 3:15–cr–00077–SRU–1). For connection to relevant conduct of the
notwithstanding a judgment of purposes of this exemption, ‘‘conduct’’ manager by rewording the condition as
conviction against Barclays PLC (BPLC) of any person or entity that is the follows:
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![94046 Federal Register / Vol. 81, No. 246 / Thursday, December 22, 2016 / Notices
‘‘(I)(i) [e]ffective as of the effective specifically designed to ensure equitable read in the final temporary exemption
date of this temporary exemption, with treatment of all investors in a pooled as follows: ‘‘as applicable, with respect
respect to any arrangement, agreement, fund in the event such withdrawal or to each such ERISA-covered plan and
or contract between a Barclays Affiliated termination may have adverse IRA.’’ The Department is also revising
QPAM and an ERISA-covered plan or consequences for all other investors as the notice requirement in Section I(i) to
IRA under which such Barclays a result of an actual lack of liquidity of require that each Barclays Affiliated
Affiliated QPAM provides asset the underlying assets, provided that QPAM will provide a notice of its
management or other discretionary such restrictions are applied agreement under Section I(i) to each
fiduciary services in reliance on PTE consistently and in like manner to all ERISA-covered plan and IRA for which
84–14, each Barclays Affiliated QPAM such investors.’’ a Barclays Affiliated QPAM provides
agrees: . . . (7) To indemnify and hold The Department has modified Section asset management or other discretionary
harmless the ERISA-covered plan or IRA I(i)(4) to make it clear that a lack of fiduciary services.
for any reasonable damages involving liquidity may include a range of similar
circumstances where reasonable Revision 9. Correction of the Term
such arrangement, agreement or contract
restrictions are necessary to protect ‘‘Barclays Affiliated QPAM’’
and resulting directly from a violation of
ERISA by such Barclays Affiliated remaining investors in a pooled fund. Section II(a) of the proposed
QPAM, or, to the extent the Barclays Furthermore, the Department has temporary exemption precludes both
Affiliated QPAM relies on the modified Section I(i)(4) in order to BPLC and BCI from acting as a QPAM.
exemptive relief provided by PTE 84–14 clarify that the limitation of adverse The Applicant represents that, as noted
under the arrangement, agreement or consequences to those resulting from a above, BCI was not the subject of the
contract, the failure of such Barclays lack of liquidity, valuation issues, or Conviction and should not be excluded
Affiliated QPAM to qualify for the regulatory reasons, is only required with from the temporary exemption. The
exemptive relief provided by PTE 84–14 respect to investments in a pooled fund Department concurs and has revised
as a result of a violation of Section I(g) subject to ERISA entered into after the Section II(a) of the final temporary
of PTE 84–14 other than as a result of Conviction Date. In any such event, the exemption accordingly.
the Conviction. This condition does not restrictions must be reasonable and last After giving full consideration to the
require indemnification of indirect, no longer than reasonably necessary to record, the Department has decided to
special, consequential or punitive avoid the adverse consequences to grant the temporary exemption, as
damages.’’ investors in the fund. described above. The complete
The Department declines to make the Therefore, the language of Section application file (Application No. D–
requested revisions, but is modifying I(i)(4) in the final temporary exemption 11862) is available for public inspection
Section I(i)(7) to clarify that ‘‘applicable requires a Barclays Affiliated QPAM in the Public Disclosure Room of the
laws’’ refer to the fiduciary duties of ‘‘[n]ot to restrict the ability of such Employee Benefits Security
ERISA and the prohibited transaction ERISA-covered plan or IRA to terminate Administration, Room N–1515, U.S.
provisions of ERISA and the Code, or withdraw from its arrangement with Department of Labor, 200 Constitution
which are likewise required to be the Barclays Affiliated QPAM with Avenue NW., Washington, DC 20210.
included in the Policies described in respect to any investment in a For a more complete statement of the
Section I(h) of this exemption. separately managed account or pooled facts and representations supporting the
Therefore, Section I(i)(7) of the fund subject to ERISA and managed by Department’s decision to grant this
temporary exemption, as granted, such QPAM, with the exception of temporary exemption, refer to the notice
requires a Barclays Affiliated QPAM reasonable restrictions, appropriately of proposed temporary exemption
‘‘[t]o indemnify and hold harmless the disclosed in advance, that are published on November 21, 2016 at 81
ERISA-covered plan or IRA for any specifically designed to ensure equitable FR 83365.
damages resulting from a violation of treatment of all investors in a pooled
fund in the event such withdrawal or Temporary Exemption Operative
ERISA’s fiduciary duties and of ERISA
termination may have adverse Language
and the Code’s prohibited transaction
provisions, a breach of contract, or any consequences for all other investors. In Section I: Covered Transactions
claim arising out of the failure of such connection with any such arrangements Certain entities with specified
Barclays Affiliated QPAM to qualify for involving investments in pooled funds relationships to BCI (hereinafter, the
the exemptive relief provided by PTE subject to ERISA entered into after the Barclays Affiliated QPAMs and the
84–14 as a result of a violation of U.S. Conviction Date, the adverse Barclays Related QPAMs, as defined in
Section I(g) of PTE 84–14 other than the consequences must relate to a lack of Sections II(a) and II(b), respectively)
Conviction.’’ liquidity of the underlying assets, will not be precluded from relying on
valuation issues, or regulatory reasons the exemptive relief provided by
Revision 7. Restrictions on Withdrawals
that prevent the fund from immediately Prohibited Transaction Class Exemption
in Section I(i)
redeeming an ERISA-covered plan’s or 84–14 (PTE 84–14 or the QPAM
Section I(i)(4) of the proposed IRA’s investment, and such restrictions
temporary exemption requires that Exemption),11 notwithstanding the
must be applicable to all such investors judgment of conviction against Barclays
Barclays Affiliated QPAMs must agree and effective no longer than reasonably
‘‘[n]ot to restrict the ability of such PLC (BPLC) (the Conviction, as defined
necessary to avoid the adverse in Section II(e)),12 for a period of up to
ERISA-covered plan or IRA to terminate consequences.’’
sradovich on DSK3GMQ082PROD with NOTICES2
or withdraw from its arrangement with 11 49 FR 9494 (March 13, 1984), as corrected at
the Barclays Affiliated QPAM Revision 8. Scope of Contractual
50 FR 41430 (October 10, 1985), as amended at 70
(including any investment in a Obligations in Section I(i) FR 49305 (August 23, 2005), and as amended at 75
separately managed account or pooled The Department, own its on motion, FR 38837 (July 6, 2010).
12 Section I(g) of PTE 84–14 generally provides
fund subject to ERISA and managed by is making a correction to Section I(i)(1)
that ‘‘[n]either the QPAM nor any affiliate thereo
such QPAM), with the exception of to revise the phrase at the end of Section . . . nor any owner . . . of a 5 percent or more
reasonable restrictions, appropriately I(i)(1)(i) that reads ‘‘with respect to each interest in the QPAM is a person who within the
disclosed in advance, that are such ERISA-covered plan and IRA’’ to 10 years immediately preceding the transaction has
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![94048 Federal Register / Vol. 81, No. 246 / Thursday, December 22, 2016 / Notices
(1) To comply with ERISA and the withdrawal or termination may have meet the terms of this temporary
Code with respect to each such ERISA- adverse consequences for all other exemption solely because a different
covered plan and IRA, as applicable; to investors, provided that such fees are Barclays Affiliated QPAM or Barclays
refrain from engaging in prohibited applied consistently and in like manner Related QPAM fails to satisfy a
transactions that are not otherwise to all such investors; condition for relief under this temporary
exempt (and to promptly correct any (6) Not to include exculpatory exemption, described in Sections I(c),
inadvertent prohibited transactions); provisions disclaiming or otherwise (d), (h), (i), (j) and (k).
and to comply with the standards of limiting liability of the Barclays
prudence and loyalty set forth in section Affiliated QPAM for a violation of such Section II: Definitions
404 of ERISA, as applicable, with agreement’s terms, except for liability (a) The term ‘‘Barclays Affiliated
respect to each such ERISA-covered caused by an error, misrepresentation, QPAM’’ means a ‘‘qualified professional
plan and IRA; or misconduct of a plan fiduciary or asset manager’’ (as defined in Section
(2) Not to require (or otherwise cause) other party hired by the plan fiduciary VI(a) 13 of PTE 84–14) that relies on the
the ERISA-covered plan or IRA to who is independent of BPLC, and its relief provided by PTE 84–14 and with
waive, limit, or qualify the liability of affiliates; and respect to which BPLC is a current or
the Barclays Affiliated QPAM for (7) To indemnify and hold harmless future ‘‘affiliate’’ (as defined in Section
violating ERISA or the Code or engaging the ERISA-covered plan or IRA for any VI(d)(1) of PTE 84–14). The term
in prohibited transactions; damages resulting from a violation of ‘‘Barclays Affiliated QPAM’’ excludes
(3) Not to require the ERISA-covered ERISA’s fiduciary duties and of ERISA BPLC.
plan or IRA (or sponsor of such ERISA- and the Code’s prohibited transaction (b) The term ‘‘Barclays Related
covered plan or beneficial owner of provisions, a breach of contract, or any QPAM’’ means any current or future
such IRA) to indemnify the Barclays claim arising out of the failure of such ‘‘qualified professional asset manager’’
Affiliated QPAM for violating ERISA or Barclays Affiliated QPAM to qualify for (as defined in Section VI(a) of PTE 84–
the Code or engaging in prohibited the exemptive relief provided by PTE 14) that relies on the relief provided by
transactions, except for violations or 84–14 as a result of a violation of PTE 84–14, and with respect to which
prohibited transactions caused by an Section I(g) of PTE 84–14 other than the BPLC owns a direct or indirect five
error, misrepresentation, or misconduct Conviction. percent or more interest, but with
of a plan fiduciary or other party hired Prior to a Barclays Affiliated QPAM’s respect to which BPLC is not an
by the plan fiduciary, who is engagement with an ERISA-covered ‘‘affiliate’’ (as defined in Section
independent of BPLC, and its affiliates; plan or IRA, the Barclays Affiliated VI(d)(1) of PTE 84–14).
(4) Not to restrict the ability of such QPAM will provide a notice of its (c) The terms ‘‘ERISA-covered plan’’
ERISA-covered plan or IRA to terminate agreement and obligations under this and ‘‘IRA’’ mean, respectively, a plan
or withdraw from its arrangement with Section I(i) to each ERISA-covered plan subject to Part 4 of Title I of ERISA and
the Barclays Affiliated QPAM with and IRA for which a Barclays Affiliated a plan subject to section 4975 of the
respect to any investment in a QPAM provides asset management or Code;
separately managed account or pooled other discretionary fiduciary services; (d) The term ‘‘BPLC’’ means Barclays
fund subject to ERISA and managed by (j) The Barclays Affiliated QPAMs PLC, the parent entity, and does not
such QPAM, with the exception of comply with each condition of PTE 84– include any subsidiaries or other
reasonable restrictions, appropriately 14, as amended, with the sole affiliates;
disclosed in advance, that are exceptions of the violations of Section (e) The term ‘‘Conviction’’ means the
specifically designed to ensure equitable I(g) of PTE 84–14 that are attributable to judgment of conviction against BPLC for
treatment of all investors in a pooled the Conviction; violation of the Sherman Antitrust Act,
fund in the event such withdrawal or (k) Each Barclays Affiliated QPAM 15 U.S.C. 1, which is scheduled to be
termination may have adverse will maintain records necessary to entered in the District Court for the
consequences for all other investors. In demonstrate that the conditions of this District of Connecticut (the District
connection with any such arrangements temporary exemption have been met, for Court), Case Number 3:15–cr–00077–
involving investments in pooled funds six (6) years following the date of any SRU–1. For all purposes under this
subject to ERISA entered into after the transaction for which such Barclays temporary exemption, ‘‘conduct’’ of any
U.S. Conviction Date, the adverse Affiliated QPAM relies upon the relief person or entity that is the ‘‘subject of
consequences must relate to a lack of in the temporary exemption; [a] Conviction’’ encompasses the
liquidity of the underlying assets, (l) During the effective period of this conduct described in Paragraph 4(g)–(j)
valuation issues, or regulatory reasons temporary exemption, BPLC: (1) of the Plea Agreement filed in the
that prevent the fund from immediately Immediately discloses to the District Court in Case Number 3:15–cr–
redeeming an ERISA-covered plan’s or Department any Deferred Prosecution 00077–SRU–1; and
IRA’s investment, and such restrictions Agreement (a DPA) or Non-Prosecution (f) The term ‘‘Conviction Date’’ means
must be applicable to all such investors Agreement (an NPA) that BPLC or an the date that a judgment of Conviction
and effective no longer than reasonably affiliate enters into with the U.S. against BPLC is entered by the District
necessary to avoid the adverse Department of Justice, to the extent such Court in connection with the
consequences; DPA or NPA involves conduct described Conviction.
(5) Not to impose any fees, penalties, in Section I(g) of PTE 84–14 or section Effective Date: This temporary
or charges for such termination or 411 of ERISA; and exemption is effective for the period
sradovich on DSK3GMQ082PROD with NOTICES2
withdrawal with the exception of (2) Immediately provides the
reasonable fees, appropriately disclosed Department any information requested 13 In general terms, a QPAM is an independent
in advance, that are specifically by the Department, as permitted by law, fiduciary that is a bank, savings and loan
designed to prevent generally regarding the agreement and/or the association, insurance company, or investment
recognized abusive investment practices conduct and allegations that led to the adviser that meets certain equity or net worth
requirements and other licensure requirements and
or specifically designed to ensure agreements; and that has acknowledged in a written management
equitable treatment of all investors in a (m) A Barclays Affiliated QPAM or a agreement that it is a fiduciary with respect to each
pooled fund in the event such Barclays Related QPAM will not fail to plan that has retained the QPAM.
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![Federal Register / Vol. 81, No. 246 / Thursday, December 22, 2016 / Notices 94049
beginning on the Conviction Date until an entity could apply for a new Conviction Date, each UBS QPAM must
the earlier of: (1) The date that is twelve exemption in that circumstance, the develop, implement, maintain, and
months following the Conviction Date; Department would not be obligated to follow written policies and procedures
or (2) the effective date of a final agency grant the exemption. The terms of this (the Policies) . . .’’ and ‘‘Within six (6)
action made by the Department in temporary exemption have been months of the Conviction Date, each
connection with an application for long- specifically designed to permit plans to UBS QPAM must develop and
term exemptive relief for the covered terminate their relationships in an implement a program of training (the
transactions described herein. orderly and cost effective fashion in the Training) . . . .’’
FOR FURTHER INFORMATION CONTACT: Ms. event of an additional conviction or a
Revision 2. Timing of Audit Under PTE
Anna Mpras Vaughan of the determination that it is otherwise
2013–09
Department, telephone (202) 693–8565. prudent for a plan to terminate its
(This is not a toll-free number.) relationship with an entity covered by Section I(i)(1) of the proposed
the temporary exemption. temporary exemption requires that each
UBS Assets Management (Americas) UBS QPAM submit to an independent
Inc.; UBS Realty Investors LLC; UBS Written Comments audit to evaluate the adequacy of, and
Hedge Fund Solutions LLC; UBS The Department invited all interested the UBS QPAM’s compliance with, the
O’Connor LLC; and Certain Future persons to submit written comments Policies and Training requirements of
Affiliates in UBS’s Asset Management and/or requests for a public hearing the exemption. The audit must cover the
and Wealth Management Americas with respect to the notice of proposed twelve month period beginning on the
Divisions (Collectively, the Applicants temporary exemption, published in the Conviction Date, and be completed no
or the UBS QPAMs); Located in Federal Register at 81 FR 81158 on later than six months thereafter. Section
Chicago, Illinois; Hartford, Connecticut; November 17, 2016. All comments and I(i)(1) of this temporary exemption
New York, New York; and Chicago, requests for hearing were due by provides further that, ‘‘[f]or time periods
Illinois, Respectively November 22, 2016. The Applicant prior to the Conviction Date and
[Prohibited Transaction Exemption 2016–17; submitted a written comment letter covered under PTE 2013–09, the audit
Exemption Application No. D–11863] requesting certain revisions to the requirements in Section (g) of PTE
proposed temporary exemption, which 2013–09 will remain in effect.’’ 14
Temporary Exemption was further supplemented through In its comment, the Applicants state
On November 17, 2016, the additional correspondence, as requested that the UBS QPAMs are currently
Department of Labor (the Department) by the Department. After considering subject to a short audit period beginning
published a notice of proposed the comment letter, the Department on September 18, 2016, the end of the
temporary exemption in the Federal determined that some, but not all, of the most recent audit period under PTE
Register at 81 FR 81158, proposing that requested revisions have merit, and has 2013–09, and ending on the Conviction
certain entities with specified revised the exemption in the manner Date, currently scheduled for January 5,
relationships to UBS, AG (hereinafter, described below. All requested revisions 2017. The Applicants state that it is
the UBS QPAMs) could continue to rely and comments, accepted or omitted, unclear when the audit under this short
on the exemptive relief provided by PTE will be reconsidered for purposes of the period must be completed and when the
84–14 (49 FR 9494 (March 13, 1984), as longer term relief proposed in the written report would be due, because
corrected at 50 FR 41430 (October 10, Federal Register at 81 FR 83385 on the twelve-month audit period under
1985), as amended at 70 FR 49305 November 21, 2016, in connection with this temporary exemption begins on the
(August 23, 2005), and as amended at 75 Exemption Application Number D– Conviction Date. UBS requests that this
FR 38837 (July 6, 2010)), 11907. The requested revisions and short audit period under PTE 2013–09
notwithstanding the ‘‘2013 Conviction’’ clarifications, and the Department’s be combined with the twelve month
against UBS Securities Japan Co., Ltd. responses thereto, are described below. audit period required by this temporary
entered on September 18, 2013 and the exemption. In the alternative, the
‘‘2016 Conviction’’ against UBS AG (the Revision 1. The Policies and Training Applicants request that the Department
2013 Conviction and the 2016 Section I(h)(1) of the proposed clarify when the final audit and written
Conviction are described in more detail temporary exemption requires each UBS report required under PTE 2013–09 is
in the proposed temporary exemption QPAM to ‘‘immediately develop, due to be completed and submitted to
and further defined in Section II(a) of implement, maintain and follow’’ the the Department.
this final temporary exemption), for a written policies and procedures (the The Department concurs with the
period of up to twelve months Policies) described in Section I(h)(1)(i) Applicants’ request that the short audit
beginning on the date that a judgment through (vii). Furthermore, Section period may be combined with the
of conviction is entered against UBS in I(h)(2) requires each UBS QPAM to twelve-month audit period under this
the 2016 Conviction. ‘‘immediately develop and implement a temporary exemption, at the election of
No relief from a violation of any other program of training (the Training)’’ the independent auditor, and has
law is provided by this temporary described therein. In its comment and in modified the language of Section I(i)(1)
exemption, including any criminal subsequent conversations with the as such. Section I(i)(1) has also be
conviction described in the proposed Department, the Applicants requested modified to clarify when the final audit
temporary exemption. Furthermore, the that Sections I(h)(1) and (2) be modified under PTE 2013–09 must be completed,
Department cautions that the relief in to allow the UBS QPAMs a period of up
sradovich on DSK3GMQ082PROD with NOTICES2
14 Prior to the Conviction Date, the effective date
this temporary exemption will terminate to six months following the date of the
of this temporary exemption, the UBS QPAMs were
immediately if, among other things, an 2016 Conviction to meet these required to rely on the relief provided by PTE 2013–
entity within the UBS corporate requirements. The Department concurs 09 in order to engage in prohibited transactions
structure is convicted of a crime with the Applicants’ request. Therefore, covered under PTE 84–14. In complying with PTE
described in Section I(g) of PTE 84–14 in the final temporary exemption, the 2013–09, the QPAMs were subject to an annual
independent audit covering the twelve month
(other than the 2013 or the 2016 Department has modified Section I(h)(1) period beginning on the September 18th of each
Conviction) during the effective period and (2) to provide that, respectively, year. According to the Applicants, the last full
of the temporary exemption. While such ‘‘Within six (6) months of the annual audit period ended on September 18, 2016.
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![94050 Federal Register / Vol. 81, No. 246 / Thursday, December 22, 2016 / Notices
in the event that the short audit period restrictions are applicable to all such as a result of a violation of Section I(g)
is not so combined with the twelve- investors.’’ of PTE 84–14 other than the
month audit period under this The Department has modified Section Convictions.’’
temporary exemption. I(j)(4) to make it clear that a ‘‘lack of The Department, is modifying Section
liquidity’’ may include a range of I(i)(7) to clarify that the ‘‘applicable
Revision 3. Restrictions on Withdrawals circumstances where reasonable laws’’ referred to in Section I(i)(7) refer
in Section I(j) restrictions are necessary to protect to the fiduciary duties of ERISA and the
The UBS QPAMs request a revision to remaining investors in a pooled fund. prohibited transaction provisions of
Section I(j) of the proposed temporary Further, the Department has added ERISA and the Code. The requirement
exemption, which imposes certain language to clarify that, in any such to comply with ERISA’s fiduciary duties
contractual obligations that UBS event the restrictions must be and with ERISA and the Code’s
QPAMs must agree to enter into in reasonable and last no longer than prohibited transaction provisions is also
connection with any arrangement, reasonably necessary to remedy the included in the Policies required under
agreement, or contract between such adverse consequences. the exemption. Therefore, Section I(i)(7)
UBS QPAMs and ERISA-covered plans Therefore, the Department has of the temporary exemption, as granted,
and IRAs for which such QPAMs modified Section I(j)(4) of this requires a UBS QPAM ‘‘[t]o indemnify
provide asset management or other temporary exemption to require UBS and hold harmless the ERISA-covered
discretionary fiduciary services. Section QPAMs: ‘‘Not to restrict the ability of plan or IRA for any damages resulting
I(j)(4) of the proposed temporary such ERISA-covered plan or IRA to from a violation of ERISA’s fiduciary
exemption requires that the UBS terminate or withdraw from its duties and of ERISA and the Code’s
QPAMs must agree ‘‘[n]ot to restrict the arrangement with the UBS QPAM with prohibited transaction provisions, a
ability of such ERISA-covered plan or respect to any investment in a breach of contract, or any claim arising
IRA to terminate or withdraw from its separately managed account or pooled out of the failure of such UBS QPAM to
arrangement with the UBS QPAM fund subject to ERISA and managed by qualify for the exemptive relief provided
(including any investment in a such QPAM, with the exception of by PTE 84–14 as a result of a violation
separately managed account or pooled reasonable restrictions, appropriately of Section I(g) of PTE 84–14 other than
disclosed in advance, that are the Convictions.’’
fund subject to ERISA and managed by
specifically designed to ensure equitable The Department is also revising the
such QPAM), with the exception of
treatment of all investors in a pooled notice requirement in Section I(j)(8) to
reasonable restrictions, appropriately
fund in the event such withdrawal or require that each UBS QPAM will
disclosed in advance, that are
termination may have adverse provide a notice of its agreement under
specifically designed to ensure equitable
consequences for all other investors. In Section I(j) to each ERISA-covered plan
treatment of all investors in a pooled
connection with any such arrangements and IRA for which a UBS QPAM
fund in the event such withdrawal or
involving investments in pooled funds provides asset management or other
termination may have adverse
subject to ERISA entered into after the discretionary fiduciary services within
consequences for all other investors as
Conviction Date, the adverse six (6) months of the effective date of
a result of an actual lack of liquidity of consequences must relate to of a lack of this temporary exemption.
the underlying assets, provided that liquidity of the underlying assets,
such restrictions are applied Revision 5. Modification of Section I(g)
valuation issues, or regulatory reasons
consistently and in like manner to all that prevent the fund from immediately Section I(g) of the proposed temporary
such investors.’’ redeeming an ERISA-covered plan’s or exemption provides that ‘‘UBS and UBS
The Applicants request that the IRA’s investment, and such restrictions Securities Japan will not provide
Department revise Section I(j)(4) in must be applicable to all such investors discretionary asset management services
order to allow reasonable restrictions on and effective no longer than reasonably to ERISA-covered plans or IRAs, nor
a plan’s ability to terminate or withdraw necessary to avoid the adverse will otherwise act as a fiduciary with
from its arrangement with a UBS QPAM consequences.’’ respect to ERISA-covered plan or IRA
involving an investment in a pooled assets.’’ The Department has modified
fund, for reasons other than an ‘‘actual Revision 4. Indemnification Provisions Section I(g) in order to clarify that UBS
lack of liquidity.’’ According to the in Section I(j) and UBS Securities Japan will not
Applicants, these circumstances include Section I(j) of the proposed temporary violate the condition in the event that
(but are not limited to) situations where exemption provides that, ‘‘[e]ffective as they inadvertently become investment
(i) it would be impracticable to establish of the effective date of this temporary advice fiduciaries and that UBS can act
an accurate fair market value for some exemption, with respect to any as a fiduciary for plans that it sponsors
of the underlying assets in a arrangement, agreement, or contract for its own employees or employees of
commingled fund; and (ii) there are between a UBS QPAM and an ERISA- an affliate.
‘‘holdbacks’’ pending the receipt of covered plan or IRA for which a UBS Therefore, Section I(g) of the
audited financial statements for the QPAM provides asset management or temporary exemption, as granted,
fund, so that final asset values have not other discretionary fiduciary services, provides that ‘‘Other than with respect
yet been determined. The Applicants each UBS QPAM agrees’’ to comply to plans sponsored or maintained by
have proposed that Section I(j)(4) be with certain obligations described in UBS for its own employees or
revised to provide that ‘‘in the event Sections I(j)(1) through (7). Specifically, employees of an affiliate, UBS and UBS
sradovich on DSK3GMQ082PROD with NOTICES2
such withdrawal or termination may Section I(j)(7) requires such UBS QPAM Securities Japan will not act as
have adverse consequences for all other ‘‘[t]o indemnify and hold harmless the fiduciaries within the meaning of ERISA
investors as the result of a lack of ERISA-covered plan or IRA for any Section 3(21)(A)(i) or (iii), or Code
liquidity of the underlying assets, damages resulting from a violation of Section 4975(e)(3)(A) or (C) with respect
valuation issues, or regulatory reasons applicable laws, a breach of contract, or to ERISA-covered plan or IRA assets; in
that prevent the fund from immediately any claim arising out of the failure of accordance with this provision, UBS
redeeming an ERISA-covered plan’s or such UBS QPAM to qualify for the and UBS Securities Japan will not be
IRA’s investment, provided that such exemptive relief provided by PTE 84–14 treated as violating the conditions of
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![Federal Register / Vol. 81, No. 246 / Thursday, December 22, 2016 / Notices 94051
this exemption solely because they (ii) Exhibits 3 and 4 to the Plea ERISA-covered plan or IRA; to refrain
acted as investment advice fiduciaries Agreement entered into between UBS from engaging in prohibited transactions
within the meaning of ERISA Section Securities Japan and the Department of that are not otherwise exempt (and to
3(21)(A)(ii), or Code Section Justice Criminal Division, on December promptly correct any inadvertent
4975(e)(3)(B).’’ 19, 2012, in connection with Case prohibited transactions); and to comply
Number 3:12–cr–00268–RNC.’’ with the standards of prudence and
Revision 6. Definition of Convictions In addition to modifying to the
and FX Misconduct loyalty set forth in section 404 of ERISA,
definition of ‘‘Convictions’’ in Section as applicable, with respect to each such
The Applicants also request that the II(a), the Department also deleted the ERISA-covered plan and IRA.’’
Department modify the language in parenthetical in Section I(a) regarding The Applicants’ comment makes
Section II(a) regarding the definition of the term ‘‘participate in’’ and reworded certain clarifications to the Summary of
‘‘Convictions.’’ Section II(a) of the the ‘‘participate in’’ parenthetical in Facts and Representations in the
proposed temporary exemption Section I(c) to read: ‘‘(for purposes of proposed temporary exemption. The
provides that ‘‘for all purposes under this paragraph (c), ‘‘participated in’’ proposed temporary exemption
this temporary exemption, ‘‘conduct’’ of includes approving or condoning the provides at 81 FR 81163 that UBS
any person or entity that is the ‘‘subject misconduct underlying the adopted and began to implement an
of [a] Conviction’’ encompasses any Conviction).’’ automated system to monitor
conduct of UBS and/or their personnel, The applicant has also requested the transactions covering the all asset
that is described in the Plea Agreement, Department revise the definition of ‘‘FX classes in 2013. However, the
(including Exhibits 1 and 3 attached Misconduct’’ in Section II(e) of the Applicants note in their comment that
thereto), and other official regulatory or temporary exemption to limit the term such implementation began in early
judicial factual findings that are a part to the conduct described in ‘‘Paragraph 2014. In addition, the proposed
of this record.’’ Specifically, the UBS 15 of Exhibit 1 of the Plea Agreement temporary exemption at 81 FR 81163
QPAMs request that the Department (Factual Basis for Breach).’’ The states that UBS has prohibited the use
strike the reference to ‘‘official Department declines to make the
of mobile phones on trading floors.
regulatory or judicial factual findings requested change to the definition of
However, the Applicants note in their
that are a part of this record,’’ because, ‘‘FX Misconduct’’ in Section II(e). The
comment that UBS has prohibited the
according to the Applicants, it is Department understands that, based on
use of personal mobile phones on
unclear what documents are being the record, the Department of Justice
trading floors for all investment bank
referred to. Furthermore, the Applicants terminated UBS AG’s 2012 Non-
sales and trading staff. The Department
state that they are unaware of any other Prosecution Agreement (the NPA)
documents having been made a part of takes note of the Applicants’
related to UBS’s fraudulent submission
the record besides the Plea Agreement, clarifications.
of LIBOR rates as a result of a
(including Exhibits 1 and 3 attached determination that UBS engaged in After giving full consideration to the
thereto). The Applicants suggest that the deceptive currency trading and sales entire record, the Department has
Department modify the language of practices, as well as collusive conduct decided to grant the temporary
Section II(a) to provide that the in certain FX markets. Thus, narrowing exemption. The complete application
‘‘conduct’’ of any person or entity that the definition of the FX Misconduct to file for the temporary exemption
is ‘‘subject of [a] Conviction’’ include only paragraph 15 of Exhibit 1 (Exemption Application No. D–11863),
encompasses any conduct of UBS and/ of the Plea Agreement would not including all supplemental submissions
or their personnel, that is described in appropriately reflect the misconduct of received by the Department, is available
Exhibit 3 to the Plea Agreement entered UBS employees in regard to the FX for public inspection in the Public
into between UBS AG and the markets that was taken into Disclosure Room of the Employee
Department of Justice Criminal Division, consideration in the breach of the NPA. Benefits Security Administration, Room
on May 20, 2015, in connection with N–1515, U.S. Department of Labor, 200
Revision 7. Technical Corrections and Constitution Avenue NW., Washington,
Case Number 3:15–cr–00076–RNC, and
Clarifications DC 20210.
Exhibits 3 and 4 to the Plea Agreement
entered into between UBS Securities The Department is making a technical For a more complete statement of the
Japan and the Department of Justice correction to the Section I(j) to clarify facts and representations supporting the
Criminal Division, on December 19, the language in that Section. In this Department’s decision to grant this
2012, in connection with Case Number regard, the Department is revising the exemption, refer to the proposed
3:12–cr–00268–RNC. phrase at the end of Section I(j)(1) that exemption published in the Federal
The Department concurs with the reads ‘‘as applicable’’ to read in the final Register on November 17, 2016 at 81 FR
applicant and has removed the reference temporary exemption as follows: ‘‘as 81158.
to ‘‘official regulatory or judicial factual applicable, with respect to each such
Temporary Exemption Operative
findings that are a part of this record,’’ ERISA-covered plan and IRA.’’ The
Language
from the definition of ‘‘Convictions’’ in Department intended for each UBS
Section II(a). Furthermore, the QPAM to contractually obligate itself to Section I: Covered Transactions
Department has modified the language apply the standards of prudence and
Certain entities with specified
in Section II(a) to provide that the loyalty set forth in section 404 of ERISA,
relationships to UBS, AG (hereinafter,
‘‘ ‘conduct’ of any person or entity that as applicable, to all ERISA-covered
the UBS QPAMs as further defined in
sradovich on DSK3GMQ082PROD with NOTICES2
is the ‘subject of [a] Conviction’ plans and IRAs for which such QPAM
Section II(b)) shall not be precluded
encompasses any conduct of UBS and/ provides asset management or other
from relying on the exemptive relief
or their personnel, that is described (i) discretionary fiduciary services.
provided by Prohibited Transaction
in Exhibit 3 to the Plea Agreement Therefore, the revised Section I(j)(1) in
Exemption 84–14 (PTE 84–14),15
entered into between UBS AG and the the final temporary exemption will
Department of Justice Criminal Division, require that each UBS QPAM agrees 15 49 FR 9494 (March 13, 1984), as corrected at
on May 20, 2015, in connection with ‘‘[t]o comply with ERISA and the Code, 50 FR 41430 (October 10, 1985), as amended at 70
Case Number 3:15–cr–00076–RNC, and as applicable with respect to such Continued
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![94052 Federal Register / Vol. 81, No. 246 / Thursday, December 22, 2016 / Notices
notwithstanding the ‘‘2013 Conviction’’ the Code (an IRA) in a manner that it information in its communications with
against UBS Securities Japan Co., Ltd. knew or should have known would: ERISA-covered plan and IRA clients;
entered on September 18, 2013 and the Further the FX Misconduct or the (vi) The UBS QPAM complies with
‘‘2016 Conviction’’ against UBS criminal conduct that is the subject of the terms of this temporary exemption;
(collectively the Convictions, as further the Convictions; or cause the UBS and
defined in Section II(a)),16 for a period QPAM, its affiliates or related parties to (vii) Any violation of, or failure to
of up to twelve months beginning on the directly or indirectly profit from the FX comply with, an item in subparagraph
Conviction Date (as defined in Section Misconduct or the criminal conduct that (ii) through (vi), is corrected promptly
II(d)), provided that the following is the subject of the Convictions; upon discovery, and any such violation
conditions are satisfied: (g) Other than with respect to plans or compliance failure not promptly
(a) The UBS QPAMs (including their sponsored or maintained by UBS for its corrected is reported, upon the
officers, directors, agents other than own employees or employees of an discovery of such failure to promptly
UBS, and employees of such UBS affiliate, UBS and UBS Securities Japan correct, in writing, to appropriate
QPAMs) did not know of, have reason will not act as fiduciaries within the corporate officers, the head of
to know of, or participate in: (1) The FX meaning of ERISA Section 3(21)(A)(i) or compliance and the General Counsel (or
Misconduct; or (2) the criminal conduct (iii), or Code Section 4975(e)(3)(A) or (C) their functional equivalent) of the
that is the subject of the Convictions; with respect to ERISA-covered plan or relevant UBS QPAM, the independent
(b) The UBS QPAMs (including their IRA assets; in accordance with this auditor responsible for reviewing
officers, directors, agents other than provision, UBS and UBS Securities compliance with the Policies, and an
UBS, and employees of such UBS Japan will not be treated as violating the appropriate fiduciary of any affected
QPAMs) did not receive direct conditions of this exemption solely ERISA-covered plan or IRA that is
compensation, or knowingly receive because they acted as investment advice independent of UBS; however, with
indirect compensation, in connection fiduciaries within the meaning of ERISA respect to any ERISA-covered plan or
with: (1) The FX Misconduct; or (2) the Section 3(21)(A)(ii), or Code Section IRA sponsored by an ‘‘affiliate’’ (as
criminal conduct that is the subject of 4975(e)(3)(B); defined in Section VI(d) of PTE 84–14)
the Convictions; of UBS or beneficially owned by an
(h)(1) Within six (6) months of the
(c) The UBS QPAMs will not employ employee of UBS or its affiliates, such
Conviction Date, each UBS QPAM must
or knowingly engage any of the fiduciary does not need to be
develop, implement, maintain, and
individuals that participated in: (1) The independent of UBS. A UBS QPAM will
follow written policies and procedures
FX Misconduct or (2) the criminal not be treated as having failed to
(the Policies) requiring and reasonably
develop, implement, maintain, or follow
conduct that is the subject of the designed to ensure that:
the Policies, provided that it corrects
Convictions (for purposes of this (i) The asset management decisions of any instance of noncompliance
Section I(c), ‘‘participated in’’ includes the UBS QPAM are conducted promptly when discovered or when it
approving or condoning the FX independently of UBS’s corporate reasonably should have known of the
Misconduct or the misconduct that is management and business activities, noncompliance (whichever is earlier),
the subject of the Convictions); including the corporate management and provided that it adheres to the
(d) A UBS QPAM will not use its and business activities of the Investment reporting requirements set forth in this
authority or influence to direct an Bank division and UBS Securities Japan; subparagraph (vii);
‘‘investment fund’’ (as defined in (ii) The UBS QPAM fully complies (2) Within six (6) months of the
Section VI(b) of PTE 84–14) that is with ERISA’s fiduciary duties and with Conviction Date, each UBS QPAM must
subject to ERISA or the Code and ERISA and the Code’s prohibited develop and implement a program of
managed by such UBS QPAM, to enter transaction provisions, and does not training (the Training), conducted at
into any transaction with UBS or UBS knowingly participate in any violation least annually, for all relevant UBS
Securities Japan or engage UBS or UBS of these duties and provisions with QPAM asset/portfolio management,
Securities Japan to provide any service respect to ERISA-covered plans and trading, legal, compliance, and internal
to such investment fund, for a direct or IRAs; audit personnel. The Training must:
indirect fee borne by such investment (iii) The UBS QPAM does not (i) Be set forth in the Policies and at
fund, regardless of whether such knowingly participate in any other a minimum, cover the Policies, ERISA
transaction or service may otherwise be person’s violation of ERISA or the Code and Code compliance (including
within the scope of relief provided by with respect to ERISA-covered plans applicable fiduciary duties and the
an administrative or statutory and IRAs; prohibited transaction provisions),
exemption; (iv) Any filings or statements made by ethical conduct, the consequences for
(e) Any failure of the UBS QPAMs to the UBS QPAM to regulators, including not complying with the conditions of
satisfy Section I(g) of PTE 84–14 arose but not limited to, the Department of this temporary exemption (including
solely from the Convictions; Labor, the Department of the Treasury, any loss of exemptive relief provided
(f) A UBS QPAM did not exercise the Department of Justice, and the herein), and prompt reporting of
authority over the assets of any plan Pension Benefit Guaranty Corporation, wrongdoing; and
subject to Part 4 of Title I of ERISA (an on behalf of ERISA-covered plans or (ii) Be conducted by an independent
ERISA-covered plan) or section 4975 of IRAs are materially accurate and professional who has been prudently
complete, to the best of such QPAM’s selected and who has appropriate
sradovich on DSK3GMQ082PROD with NOTICES2
FR 49305 (August 23, 2005), and as amended at 75 knowledge at that time;
FR 38837 (July 6, 2010).
technical training and proficiency with
16 Section I(g) of PTE 84–14 generally provides (v) The UBS QPAM does not make ERISA and the Code;
that ‘‘[n]either the QPAM nor any affiliate thereof material misrepresentations or omit (i)(1) Each UBS QPAM submits to an
. . . nor any owner . . . of a 5 percent or more material information in its audit conducted by an independent
interest in the QPAM is a person who within the communications with such regulators auditor, who has been prudently
10 years immediately preceding the transaction has
been either convicted or released from
with respect to ERISA-covered plans or selected and who has appropriate
imprisonment, whichever is later, as a result of’’ IRAs, or make material technical training and proficiency with
certain criminal activity therein described. misrepresentations or omit material ERISA and the Code, to evaluate the
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![94054 Federal Register / Vol. 81, No. 246 / Thursday, December 22, 2016 / Notices
or contract between a UBS QPAM and or specifically designed to ensure Immediately discloses to the
an ERISA-covered plan or IRA for which equitable treatment of all investors in a Department any Deferred Prosecution
such UBS QPAM provides asset pooled fund in the event such Agreement (a DPA) or Non-Prosecution
management or other discretionary withdrawal or termination may have Agreement (an NPA) that UBS or any of
fiduciary services, each UBS QPAM adverse consequences for all other its affiliates enters into with the U.S.
agrees: investors, provided that such fees are Department of Justice, to the extent such
(1) To comply with ERISA and the applied consistently and in like manner DPA or NPA involves conduct described
Code, as applicable with respect to such to all such investors; in Section I(g) of PTE 84–14 or section
ERISA-covered plan or IRA; to refrain (6) Not to include exculpatory 411 of ERISA; and (2) immediately
from engaging in prohibited transactions provisions disclaiming or otherwise provides the Department any
that are not otherwise exempt (and to limiting liability of the UBS QPAM for information requested by the
promptly correct any inadvertent a violation of such agreement’s terms, Department, as permitted by law,
prohibited transactions); and to comply except for liability caused by an error, regarding the agreement and/or the
with the standards of prudence and misrepresentation, or misconduct of a conduct and allegations that led to the
loyalty set forth in section 404 of ERISA, plan fiduciary or other party hired by agreement; and
as applicable, with respect to each such the plan fiduciary who is independent (p) A UBS QPAM will not fail to meet
ERISA-covered plan and IRA; of UBS and its affiliates; and the terms of this temporary exemption
(2) Not to require (or otherwise cause) (7) To indemnify and hold harmless solely because a different UBS QPAM
the ERISA-covered plan or IRA to the ERISA-covered plan or IRA for any fails to satisfy a condition for relief
waive, limit, or qualify the liability of damages resulting from a violation of under this temporary exemption
the UBS QPAM for violating ERISA or ERISA’s fiduciary duties and of ERISA described in Sections I(c), (d), (h), (i), (j),
the Code or engaging in prohibited and the Code’s prohibited transaction (k), and (n).
transactions; provisions, a breach of contract, or any
(3) Not to require the ERISA-covered Section II: Definitions
claim arising out of the failure of such
plan or IRA (or sponsor of such ERISA- UBS QPAM to qualify for the exemptive (a) The term ‘‘Convictions’’ means the
covered plan or beneficial owner of relief provided by PTE 84–14 as a result 2013 Conviction and the 2016
such IRA) to indemnify the UBS QPAM of a violation of Section I(g) of PTE 84– Conviction. The term ‘‘2013
for violating ERISA or engaging in 14 other than the Convictions; Conviction’’ means the judgment of
prohibited transactions, except for (8) Within six (6) months of the conviction against UBS Securities Japan
violations or prohibited transactions effective date of this temporary Co. Ltd. in Case Number 3:12–cr–
caused by an error, misrepresentation, exemption each UBS QPAM will 00268–RNC in the U.S. District Court for
or misconduct of a plan fiduciary or provide a notice of its agreement and the District of Connecticut for one count
other party hired by the plan fiduciary obligations under this Section I(j) to of wire fraud in violation of Title 18,
who is independent of UBS; each ERISA-covered plan and IRA for United Sates Code, sections 1343 and 2
(4) Not to restrict the ability of such which a UBS QPAM provides asset in connection with submission of YEN
ERISA-covered plan or IRA to terminate management or other discretionary London Interbank Offered Rates and
or withdraw from its arrangement with fiduciary services; other benchmark interest rates. The term
the UBS QPAM with respect to any (k) The UBS QPAMs comply with ‘‘2016 Conviction’’ means the
investment in a separately managed each condition of PTE 84–14, as anticipated judgment of conviction
account or pooled fund subject to ERISA amended, with the sole exceptions of against UBS AG in Case Number 3:15–
and managed by such QPAM, with the the violations of Section I(g) of PTE 84– cr–00076–RNC in the U.S. District Court
exception of reasonable restrictions, 14 that are attributable to the for the District of Connecticut for one
appropriately disclosed in advance, that Convictions; count of wire fraud in violation of Title
are specifically designed to ensure (l) UBS imposes its internal 18, United States Code, Sections 1343
equitable treatment of all investors in a procedures, controls, and protocols on and 2 in connection with UBS’s
pooled fund in the event such UBS Securities Japan to: (1) Reduce the submission of Yen London Interbank
withdrawal or termination may have likelihood of any recurrence of conduct Offered Rates and other benchmark
adverse consequences for all other that that is the subject of the 2013 interest rates between 2001 and 2010.
investors. In connection with any such Conviction, and (2) comply in all For all purposes under this proposed
arrangements involving investments in material respects with the Business temporary exemption, ‘‘conduct’’ of any
pooled funds subject to ERISA entered Improvement Order, dated December person or entity that is the ‘‘subject of
into after the Conviction Date, the 16, 2011, issued by the Japanese [a] Conviction’’ encompasses any
adverse consequences must relate to of Financial Services Authority; conduct of UBS and/or their personnel,
a lack of liquidity of the underlying (m) UBS complies in all material that is described (i) in Exhibit 3 to the
assets, valuation issues, or regulatory respects with the audit and monitoring Plea Agreement entered into between
reasons that prevent the fund from procedures imposed on UBS by the UBS AG and the Department of Justice
immediately redeeming an ERISA- United States Commodity Futures Criminal Division, on May 20, 2015, in
covered plan’s or IRA’s investment, and Trading Commission Order, dated connection with Case Number 3:15–cr–
such restrictions must be applicable to December 19, 2012; 00076–RNC, and (ii) Exhibits 3 and 4 to
all such investors and effective no (n) Each UBS QPAM will maintain the Plea Agreement entered into
longer than reasonably necessary to records necessary to demonstrate that between UBS Securities Japan and the
sradovich on DSK3GMQ082PROD with NOTICES2
avoid the adverse consequences; the conditions of this temporary Department of Justice Criminal Division,
(5) Not to impose any fees, penalties, exemption have been met, for six (6) on December 19, 2012, in connection
or charges for such termination or years following the date of any with Case Number 3:12–cr–00268–RNC;
withdrawal with the exception of transaction for which such UBS QPAM (b) The term ‘‘UBS QPAM’’ means
reasonable fees, appropriately disclosed relies upon the relief in the temporary UBS Asset Management (Americas) Inc.,
in advance, that are specifically exemption; UBS Realty Investors LLC, UBS Hedge
designed to prevent generally (o) During the effective period of this Fund Solutions LLC, UBS O’Connor
recognized abusive investment practices temporary exemption UBS: (1) LLC, and any future entity within the
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![Federal Register / Vol. 81, No. 246 / Thursday, December 22, 2016 / Notices 94055
Asset Management or the Wealth Justice Criminal Division, on May 20, responsibility provisions of section 404
Management Americas divisions of UBS 2015 in connection with Case Number of the Act, which among other things
AG that qualifies as a ‘‘qualified 3:15–cr–00076–RNC filed in the U.S. require a fiduciary to discharge his
professional asset manager’’ (as defined District Court for the District of duties respecting the plan solely in the
in Section VI(a) 17 of PTE 84–14) and Connecticut. interest of the participants and
that relies on the relief provided by PTE Effective Date: This temporary beneficiaries of the plan and in a
84–14 and with respect to which UBS exemption is effective for the period prudent fashion in accordance with
AG is an ‘‘affiliate’’ (as defined in Part beginning on the date that a judgment section 404(a)(1)(B) of the Act; nor does
VI(d)(1) of PTE 84–14). The term ‘‘UBS of conviction against UBS is entered in it affect the requirement of section
QPAM’’ excludes the parent entity, UBS Case Number 3:15–cr–00076–RNC in 401(a) of the Code that the plan must
AG and UBS Securities Japan. the U.S. District Court for the District of operate for the exclusive benefit of the
(c) The term ‘‘UBS’’ means UBS AG. Connecticut for one count of wire fraud employees of the employer maintaining
(d) The term ‘‘Conviction Date’’ in violation of Title 18, United States the plan and their beneficiaries;
means the date that a judgment of Code, Sections 1343 and 2 (the
conviction against UBS is entered in the Conviction Date), and ending on the (2) These exemptions are
2016 Conviction. earlier of: The date that is twelve supplemental to and not in derogation
(e) The term ‘‘FX Misconduct’’ means months following the Conviction Date; of, any other provisions of the Act and/
the conduct engaged in by UBS or the effective date of a final agency or the Code, including statutory or
personnel described in Exhibit 1 of the action made by the Department in administrative exemptions and
Plea Agreement (Factual Basis for connection with Exemption Application transactional rules. Furthermore, the
Breach) entered into between UBS AG No. D–11907, an application for long- fact that a transaction is subject to an
and the Department of Justice Criminal term exemptive relief for the covered administrative or statutory exemption is
Division, on May 20, 2015 in connection transactions described herein. not dispositive of whether the
with Case Number 3:15–cr–00076–RNC transaction is in fact a prohibited
FOR FURTHER INFORMATION CONTACT:
filed in the U.S. District Court for the Brian Mica, telephone (202) 693–8402, transaction; and
District of Connecticut. Office of Exemption Determinations, (3) The availability of these
(f) The term ‘‘UBS Securities Japan’’ exemptions is subject to the express
Employee Benefits Security
means UBS Securities Japan Co. Ltd, a condition that the material facts and
Administration, U.S. Department of
wholly-owned subsidiary of UBS representations contained in the
incorporated under the laws of Japan. Labor (this is not a toll-free number).
application accurately describes all
(g) The term ‘‘Plea Agreement’’ means General Information
the Plea Agreement (including Exhibits material terms of the transaction which
The attention of interested persons is is the subject of the exemption.
1 and 3 attached thereto) entered into
directed to the following:
between UBS AG and the Department of (1) The fact that a transaction is the Signed at Washington, DC, this 14th day of
December, 2016.
17 In general terms, a QPAM is an independent
subject of an exemption under section
408(a) of the Act and/or section Lyssa E. Hall,
fiduciary that is a bank, savings and loan
association, insurance company, or investment 4975(c)(2) of the Code does not relieve Director of Exemption Determinations,
adviser that meets certain equity or net worth a fiduciary or other party in interest or Employee Benefits Security Administration,
requirements and other licensure requirements and disqualified person from certain other U.S. Department of Labor.
that has acknowledged in a written management
provisions to which the exemption does [FR Doc. 2016–30566 Filed 12–21–16; 8:45 am]
agreement that it is a fiduciary with respect to each
plan that has retained the QPAM. not apply and the general fiduciary BILLING CODE 4510–29–P
sradovich on DSK3GMQ082PROD with NOTICES2
VerDate Sep<11>2014 18:52 Dec 21, 2016 Jkt 241001 PO 00000 Frm 00029 Fmt 4701 Sfmt 9990 E:\FR\FM\22DEN2.SGM 22DEN2](https://thefederalregister.org/doc/81_FR_94274/page/28.svg)
Document Created: 2016-12-21 23:52:02
Document Modified: 2016-12-21 23:52:02
| Category | Regulatory Information | |
| Collection | Federal Register | |
| sudoc Class | AE 2.7: GS 4.107: AE 2.106: | |
| Publisher | Office of the Federal Register, National Archives and Records Administration | |
| Section | Notices | |
| Action | Grant of individual exemptions. | |
| Dates | This temporary exemption will be effective for the period beginning on the U.S. Conviction Date, and ending on the earlier of the date that is twelve months following the U.S. Conviction Date; or the effective date of a final agency action made by the Department in connection with Exemption Application No. D-11908, an application for long-term exemptive relief for the covered transactions described herein. | |
| Contact | Mr. Scott Ness of the Department, telephone (202) 693-8561, Office of Exemption Determinations, Employee Benefits Security Administration, U.S. Department of Labor (this is not a toll-free number). | |
| FR Citation | 81 FR 94028 |
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