Bankers Trust Co., New York, New York, BT Alex Brown Inc., and Deutsche Bank AG

[Federal Register Volume 64, Number 143 (Tuesday, July 27, 1999)]
[Notices]
[Pages 40623-40626]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-19152]


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DEPARTMENT OF LABOR

Pension and Welfare Benefits Administration
[Prohibited Transaction Exemption 99-29; Exemption Application No. D-
10747]


Bankers Trust Co., New York, New York, BT Alex Brown Inc., and 
Deutsche Bank AG

AGENCY: Pension and Welfare Benefits Administration, Department of 
Labor

ACTION: Grant of Individual Exemption.

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SUMMARY: This document contains a final exemption from certain of the

[[Page 40624]]

prohibited transaction restrictions of the Employee Retirement Income 
Security Act of 1974 (ERISA or the Act) and the Internal Revenue Code 
of 1986 (the Code). The final exemption, granted by the Department of 
Labor (the Department) to Bankers Trust Company, BT Alex Brown and 
Deutsche Bank AG, provides that those entities shall not be precluded 
from functioning as a ``qualified professional asset manager'' pursuant 
to Prohibited Transaction Exemption 84-14 (49 FR 9494, March 13, 
1984)(PTE 84-14) solely because of a failure to satisfy section I(g) of 
PTE 84-14 as a result of Bankers Trust Company's conviction for 
felonies described in a March 11, 1999 felony information.

FOR FURTHER INFORMATION CONTACT: Ms. Allison Padams-Lavigne of the 
Department, telephone (202) 219-8194. (This is not a toll-free number.)

SUPPLEMENTARY INFORMATION: On June 7, 1999, the Department published a 
notice in the Federal Register of the pendency before the Department of 
a proposed exemption requested by Bankers Trust Company and Deutsche 
Bank AG. The Department proposed the exemption in response to an 
application dated March 12, 1999, which was submitted on behalf of 
Bankers Trust Company and its future affiliates pursuant to section 
408(a) of the Act and section 4975(c)(2) of the Code and in accordance 
with the procedures set forth in 29 CFR Part 2570, Subpart (55 FR 
32836, 32847, August 10, 1990).1
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    \1\ Effective December 31, 1978, section 102 of Reorganization 
Plan No. 4 of 1978 (43 FR 47713, October 17, 1978) transferred the 
authority of the Secretary of Treasury to issue exemptions of the 
type proposed to the Secretary of Labor.
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    The notice set forth a summary of the facts and representations 
contained in the application for exemption and also invited interested 
persons to submit comments or requests for a hearing on the pending 
exemption to the Department.
    The applicants agreed to provide notice to interested persons 
within three days of the date that the proposal appeared in the Federal 
Register. The applicants have represented that notice was furnished to 
five interested persons two days later than that date. As a result, the 
comment period was extended for two additional days. The applicants 
represent that notice to all other interested persons was furnished in 
a timely manner. All comments and requests for hearing were due by July 
12, 1999.
    The Department received eleven comments from interested persons on 
the proposed exemption. The Department forwarded copies of the comments 
to the applicants and requested that the applicants address in writing 
the various concerns raised by the commentators. Most of the comments 
fell into broad categories that the applicants responded to in a 
general fashion. Where a single commentator raised a specific issue, 
such issue was responded to individually. A description of the comments 
and the applicants' responses are summarized below.
    One commentator urged that the exemption not be granted because he 
had not received all of his benefits under a plan maintained by Bankers 
Trust Company. Bankers Trust Company notes that the former participant 
enclosed with his comment a copy of the check receipt that he had 
received at the time of the distribution. Bankers Trust Company 
believes that the participant received the full amount of his benefit 
at the time he received his check receipt.
    Five comments urged denial of the exemption because of the 
commentators' belief that Bankers Trust Company has failed to meet the 
highest standard as a fiduciary. Deutsche Bank AG responded that it is 
committed to maintaining the highest fiduciary standards on which 
Bankers Trust Company was organized in 1903, and intends to bring 
together the best of the long traditions of service of each 
organization, building on the organizational changes described in the 
exemption application and the new policies and procedures put in place 
in the recent past.
    One commentator suggested that not all employees have received 
certain ethics training. Deutsche Bank AG represents that it will 
verify that all Global Institutional Services (GIS) employees have 
received the appropriate training.2 Another commentator was 
concerned that the legal protections of the Act and the Code would be 
eliminated if the exemption was granted. Deutsche Bank AG responded 
that it understands that all of the legal requirements of the Act and 
the Code continue to apply to the employee benefit plans of Bankers 
Trust Company and, as sponsor of those plans, represents that it will 
fully comply with all laws respecting its plans.
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    \2\ The March 11, 1999 felony information related to the conduct 
of certain employees in Bankers Trust Company's processing services 
business. This unit was subsequently restructured as part of GIS.
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    Two commentators opposed the granting of the exemption because they 
had unanswered questions about their pension benefits. While these 
comments did not relate to the terms of the exemption, Deutsche Bank 
represents that it will contact those commentators and attempt to 
resolve their questions.
    Another commentator argued that the exemption ought to be denied 
because, in the commentator's view, Deutsche Bank AG discriminates 
against members of the Church of Scientology. Deutsche Bank AG states 
that it maintains strict policies against discrimination on the basis 
of sex, race, creed or national origin and believes that those policies 
have been adhered to. Another commentator argued that the exemption 
should be denied because, in the past, Bankers Trust Company merged two 
of its employee benefit plans inappropriately. Bankers Trust Company 
responds that its actions in merging its plans were fully in compliance 
with the law.
    In addition to comments, questions and requests for a hearing, the 
Department also received a comment letter, dated July 13, 1999, from 
Deutsche Bank AG. Deutsche Bank AG notes that Paragraph 2 of the Facts 
and Representations of the Notice states that BT Alex Brown is a 
subsidiary of Bankers Trust Corporation. Deutsche Bank AG noted that 
while that fact was true as of the date of the proposed exemption, BT 
Alex Brown is now a subsidiary of Deutsche Bank Securities, Inc.
    Two commentators also requested a hearing on the proposal. The 
Department believes that the issues raised by the commentators are 
outside the scope of the proposed exemption. Accordingly, the 
Department does not believe that any issues have been identified which 
would require the convening of a hearing and has determined not to hold 
a public hearing.
    Accordingly, after giving full consideration to the entire record, 
including the comments by the commentators, and the responses of the 
applicants, the Department has determined to grant the exemption. In 
this regard, the comments submitted to the Department have been 
included as part of the public record of the exemption application. The 
complete application file, including all supplemental submissions 
received by the Department, is made available for public inspection in 
the Public Documents Room of the Pension and Welfare Benefits 
Administration, Room N-5507, U.S. Department of Labor, 200 Constitution 
Ave. NW, Washington DC 20010.

[[Page 40625]]

General Information

    The attention of interested persons is directed to the following:
    (1) The fact that a transaction is the subject of an exemption 
granted under section 408(a) of the Act and/or 4975(c)(2) of the Code 
does not relieve a fiduciary or other party in interest with respect to 
a plan to which the exemption is applicable from certain other 
provisions of the Act and/or the Code. These provisions include any 
prohibited transaction provisions to which the exemption does not apply 
and the general fiduciary provisions of section 404 of the Act which, 
among other things, requires a fiduciary to discharge his or her duties 
respecting the plan solely in the interests 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) This exemption is supplemental to and not in derogation of any 
other provisions of the Act and/or Code, including statutory or 
administrative exemptions and transitional rules. Furthermore, the fact 
that a transaction is subject to an administrative or statutory 
exemption is not dispositive of whether the transaction is in fact a 
prohibited transaction; and
    (3) The availability of this exemption is subject to the express 
condition that the material facts and representations contained in the 
application are true and complete and accurately describe all material 
terms of the transaction which is the subject of this exemption.

Exemption

Section I. Bankers Trust Company

    Bankers Trust Company shall not be precluded from functioning as a 
``qualified professional asset manager'' pursuant to Prohibited 
Transaction Exemption 84-14 (49 FR 9494, March 13, 1994) (PTE 84-14) 
for the period beginning on the date of sentencing with respect to the 
charges to which Bankers Trust Company 3 pled guilty on 
March 11, 1999 and ending five years 4 from the date of 
publication of the final exemption in the Federal Register, solely 
because of a failure to satisfy section I(g) of PTE 84-14 as a result 
of the conviction of Bankers Trust Company for felonies described in 
the March 11, 1999 felony information (the Information) entered in the 
U.S. District Court for the Southern District of New York, provided 
that:
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    \3\ On June 4, 1999, Bankers Trust Corporation, the parent of 
Bankers Trust Company, was acquired by Deutsche Bank AG. Bankers 
Trust Company, now a subsidiary of Deutsche Bank AG, continues to 
offer banking services to its clients.
    \4\ Prior to the expiration of this exemption, Bankers Trust 
Company may apply for an extension of the exemption.
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    (a) This exemption is not applicable if Bankers Trust Company 
becomes affiliated with any person or entity convicted of any of the 
crimes described in section I(g) of PTE 84-14; and
    (b) This exemption is not applicable if Bankers Trust Company is 
convicted of any of the crimes described in section I(g) of PTE 84-14, 
other than those felonies discussed in the Information;
    (c) The custody operations that were part of Bankers Trust Company 
at the time of the March 11, 1999 information, and which have 
subsequently been reorganized as part of Global Institutional Services 
(GIS), are subject to an annual examination of its abandoned property 
and escheatment policies, procedures and practices by an independent 
public accounting firm. The examination required by this condition 
shall determine whether the written procedures adopted by Bankers Trust 
Company are properly designed to assure compliance with the 
requirements of ERISA. The annual examination shall specifically 
require a determination by the auditor as to whether the Bank has 
developed and adopted internal policies and procedures that achieve 
appropriate control objectives and shall include a test of a 
representative sample of transactions, fifty percent of which must 
involve ERISA covered plans, to determine operational compliance with 
such policies and procedures. The auditor shall issue a written report 
describing the steps performed by the auditor during the course of its 
examination. The report shall include the auditor's specific findings 
and recommendations. This requirement shall continue to be applicable 
to the custody operations that were part of Bankers Trust Company as of 
March 11, 1999, notwithstanding any subsequent reorganization of the 
custody operation function during the term of the exemption.
    (d) With respect to the independent audit report described in 
section I(c) above:
    (1) Bankers Trust Company shall provide notice to the Department of 
any instances of the Bank's noncompliance with the written policies and 
procedures reviewed by the auditor within 10 business days after such 
noncompliance is determined by the auditor notwithstanding the fact 
that the examination may not have been completed as of that date. Upon 
request, the auditor shall provide the Department with all of the 
relevant workpapers reflecting the instances of noncompliance. The 
workpapers should identify whether and to what extent the assets of 
ERISA plans were involved in the instances of noncompliance, and
    (2) Any information relating to the Bank's noncompliance with the 
written policies and procedures that is required by Federal and/or 
state banking authorities to be reported to the state and/or Federal 
banking agencies shall also be reported by Bankers Trust Company to the 
Department within the same time frames that such information is 
otherwise required to be reported to those agencies.
    (e) The annual examination described in section I(c) above will be 
provided to the Department not later than 90 days following the 12 
month period to which it relates, and will be unconditionally available 
for examination by any duly authorized employee or representative of 
the Department, Internal Revenue Service, Securities and Exchange 
Commission or Department of Justice or other relevant regulators and 
any fiduciary of a plan for which Bankers Trust Company performs 
services.

Section II

    BT Alex. Brown Incorporated and its subsidiaries and Deutsche Bank 
AG shall not be precluded from functioning as a ``qualified 
professional asset manager'' pursuant to PTE 84-14 for the period 
beginning on the date of sentencing with respect to the charges to 
which Bankers Trust Company pled guilty on March 11, 1999 and ending 
ten years from the date of publication of the final exemption in the 
Federal Register, solely because of a failure to satisfy section I(g) 
of PTE 84-14 as a result of an affiliation with Bankers Trust Company, 
provided that:
    (a) This exemption is not applicable if BT Alex. Brown 
Incorporated, its subsidiaries or Deutsche Bank AG becomes affiliated 
with any person or entity convicted of any of the crimes described in 
section I(g) of PTE 84-14; and
    (b) This exemption is not applicable if BT Alex. Brown 
Incorporated, its subsidiaries or Deutsche Bank AG is convicted of any 
of the crimes described in section I(g) of PTE 84-14.

Section III. Definitions

    (a) For purposes of this exemption, the term ``Bankers Trust 
Company'' includes Bankers Trust Company and any entity that was 
affiliated with Bankers Trust Company prior to the

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date of the acquisition of Bankers Trust Corporation by Deutsche Bank 
AG, other than BT Alex. Brown Incorporated and its subsidiaries.
    (b) For purposes of this exemption, ``Deutsche Bank AG'' includes 
Deutsche Bank AG and any entity that was affiliated with Deutsche Bank 
AG prior to the date of the acquisition of Bankers Trust Corporation by 
Deutsche Bank AG, and any future affiliates, other than Bankers Trust 
Company, as defined in subsection (a).
    (c) The term ``affiliate'' of a person means--
    (1) Any person directly or indirectly through one or more 
intermediaries, controlling, controlled by, or under common control 
with the person,
    (2) Any director of, relative of, or partner in, any such person,
    (3) Any corporation, partnership, trust or unincorporated 
enterprise of which such person is an officer, director, or a 5 percent 
or more partner or owner, and,
    (4) Any employee or officer of the person who--
    (A) is a highly compensated employee (as defined in section 
4975(e)(2)(H) of the Code) or officer (earning 10 percent or more of 
the yearly wages of such person) or,
    (B) has direct or indirect authority, responsibility or control 
regarding the custody, management or disposition of plan assets.
    (d) The term ``control'' means the power to exercise a controlling 
influence over the management or policies of a person other than an 
individual.

    Signed at Washington, DC, this 22nd day of July, 1999.
Ivan L. Strasfeld,
Director of Exemption Determinations, Pension and Welfare Benefits 
Administration, Department of Labor.
[FR Doc. 99-19152 Filed 7-26-99; 8:45 am]
BILLING CODE 4510-29-P