# Proposed Exemptions From Certain Prohibited Transaction Restrictions

> Briefs, arguments, decisions, and more.

URL: https://www.frixlaw.com/law-library/documents/fr%3A2016-27563

## Record

- **Collection:** Federal Register
- **Document type:** Notice
- **Published:** November 21, 2016
- **Citation:** 81 FR 83336

## Text

DEPARTMENT OF LABOR
Employee Benefits Security Administration
Proposed Exemptions From Certain Prohibited Transaction Restrictions

AGENCY:

Employee Benefits Security Administration, Labor.

ACTION:

Notice of proposed exemptions.

SUMMARY:

This document contains notices of pendency before the Department of Labor (the Department) of proposed exemptions 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 proposed exemptions:D-11856, Deutsche Investment Management Americas Inc. and Certain Current and Future Asset Management Affiliates of Deutsche Bank AG;D-11859, Citigroup, Inc.; D-11861, JPMorgan Chase & Co.; D-11862, Barclays Capital Inc.; D-11906, JPMorgan Chase & Co.; D-11907, UBS Assets Management, UBS Realty Investors, UBS Hedge Fund Solutions LLC, UBS O'Connor LLC, and Certain Future Affiliates in UBS's Asset Management and Wealth Management Americas Divisions; D-11908, Deutsche Investment Management Americas Inc. and Certain Current and Future Asset Management Affiliates of Deutsche Bank; D-11909, Citigroup, Inc.; and, D-11910, Barclays Capital Inc.

DATES:

All interested persons are invited to submit written comments or requests for a hearing on the pending exemptions, unless otherwise stated in the Notice of Proposed Exemption, within 45 days from the date of publication of this
Federal Register
Notice.

ADDRESSES:

Comments and requests for a hearing should state: (1) The name, address, and telephone number of the person making the comment or request, and (2) the nature of the person's interest in the exemption and the manner in which the person would be adversely affected by the exemption. A request for a hearing must also state the issues to be addressed and include a general description of the evidence to be presented at the hearing. All written comments and requests for a hearing (at least three copies) should be sent to the Employee Benefits Security Administration (EBSA), Office of Exemption Determinations, U.S. Department of Labor, 200 Constitution Avenue NW., Suite 400, Washington, DC 20210. Attention: Application No. __, stated in each Notice of Proposed Exemption. Interested persons are also invited to submit comments and/or hearing requests to EBSA via email or FAX. Any such comments or requests should be sent either by email to:
moffitt.betty@dol.gov
, or by FAX to (202) 693-8474 by the end of the scheduled comment period. The applications for exemption and the comments received will be available for public inspection in the Public Documents Room of the Employee Benefits Security Administration, U.S. Department of Labor, Room N-1515, 200 Constitution Avenue NW., Washington, DC 20210.

Warning:
All comments will be made available to the public. Do not include any personally identifiable information (such as Social Security number, name, address, or other contact information) or confidential business information that you do not want publicly disclosed. All comments may be posted on the Internet and can be retrieved by most Internet search engines.

SUPPLEMENTARY INFORMATION:

Notice to Interested Persons

Notice of the proposed exemptions will be provided to all interested persons in the manner agreed upon by the applicant and the Department within 15 days of the date of publication in the
Federal Register
. Such notice shall include a copy of the notice of proposed exemption as published in the
Federal Register
and shall inform interested persons of their right to comment and to request a hearing (where appropriate).

The proposed exemptions were requested in applications filed pursuant to section 408(a) of the Act and/or section 4975(c)(2) of the Code, and in accordance with procedures set forth in 29 CFR part 2570, subpart B (76 FR 66637, 66644, October 27, 2011).
1

Effective December 31, 1978, section 102 of Reorganization Plan No. 4 of 1978, 5 U.S.C. App. 1 (1996), transferred the authority of the Secretary of the Treasury to issue exemptions of the type requested to the Secretary of Labor. Therefore, these notices of proposed exemption are issued solely by the Department.

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).

The applications contain representations with regard to the proposed exemptions which are summarized below. Interested persons are referred to the applications on file with the Department for a complete statement of the facts and representations.

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

[Exemption Application No. D-11856]
Proposed Temporary Exemption

The Department is considering granting a temporary exemption under the authority of section 408(a) of the Employee Retirement Income Security Act of 1974, as amended (ERISA or the Act), and section 4975(c)(2) of the Internal Revenue Code of 1986, as amended (the Code), and in accordance with the procedures set forth in 29 CFR part 2570, subpart B (76 FR 66637, 66644, October 27, 2011).
2

2
For purposes of this proposed temporary exemption, references to section 406 of Title I of the Act, unless otherwise specified, should be read to refer as well to the corresponding provisions of section 4975 of the Code.

Section I: Covered Transactions

If the proposed temporary exemption is granted, 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 exemptive relief provided by Prohibited Transaction Exemption (PTE) 84-14,
3

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 23, 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 the April 3, 2017 (collectively, the Convictions, as further defined in Section II(a)),
4

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:

3
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).

4
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 (for purposes of this paragraph (a), “participate in” includes the knowing or tacit approval of the misconduct underlying 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 the knowing or tacit approval of 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) 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;

(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 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 proposed 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 proposed 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 proposed 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; and

(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 proposed temporary exemption, and with the applicable provisions of ERISA and the Code;

(8) The Risk Committee of Deutsche Bank's Board of Directors is provided a copy of each Audit Report; and a senior executive officer with a direct reporting line to the highest ranking legal 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 proposed 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;

(j) Effective 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 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 (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;

(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 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;

Within four (4) months of the effective date of this temporary exemption, each DB QPAM will provide a notice of its 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. 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 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;

(b) The term “DB QPAM” means a “qualified professional asset manager” (as defined in section VI(a)
5

of PTE 84-14) that relies on the relief provided by PTE 84-14 and with respect to which DSK or DK Group Services is a current or future “affiliate” (as defined in section VI(d) 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;

5
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;

(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;

(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 Factual Statement thereto), 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 actions 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 related to the manipulation of the London Interbank Offered Rate (LIBOR); 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 proposed temporary exemption will be effective for the period beginning on the U.S. Conviction Date, and ending on the earlier 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.

Department's Comment:
The Department is publishing this proposed

temporary exemption in order to protect ERISA-covered plans and IRAs from certain costs and/or investment losses for up to one year, that may arise to the extent entities with a corporate relationship to Deutsche Bank lose their ability to rely on PTE 84-14 as of the U.S. Conviction Date, as described below. Elsewhere today in the
Federal Register
, the Department is also proposing a five-year proposed exemption, Exemption Application No. D-11908, that would provide the same relief that is described herein, but for a longer effective period. The five-year proposed exemption is subject to enhanced conditions and a longer comment period. Comments received in response to this proposed temporary exemption will be considered in connection with the Department's determination whether or not to grant such five-year exemption.

The proposed exemption would provide relief from certain of the restrictions set forth in sections 406 and 407 of ERISA. If granted, no relief from a violation of any other law would be provided by this exemption.

Furthermore, the Department cautions that the relief in this proposed temporary exemption would terminate immediately if, among other things, an entity within the Deutsche Bank 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 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 proposed 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 proposed exemption.

Summary of Facts and Representations

6

6
The Summary of Facts and Representations is based on Deutsche Bank and DIMA's representations, unless indicated otherwise.

Background

1. Deutsche Bank AG (together with its current and future affiliates, Deutsche Bank) is a German banking corporation and a commercial bank. Deutsche Bank, with and through its affiliates, subsidiaries and branches, provides a wide range of banking, fiduciary, recordkeeping, custodial, brokerage and investment services to, among others, corporations, institutions, governments, employee benefit plans, government retirement plans and private investors. Deutsche Bank had €68.4 billion in total shareholders' equity and €1,709 billion in total assets as of December 31, 2014.
7

7
Deutsche Bank represents that its audited financial statements are expressed in Euros and are not converted to dollars.

2. Deutsche Investment Management Americas Inc. (DIMA) is an investment adviser registered with the SEC under the Investment Advisers Act of 1940, as amended. DIMA and other wholly-owned subsidiaries of Deutsche Bank provide discretionary asset-management services to employee benefit plans and IRAs. Such entities include: (A) DIMA; (B) Deutsche Bank Securities Inc., which is a dual-registrant with the SEC under the Advisers Act as an investment adviser and broker-dealer; (C) RREEF America L.L.C., a Delaware limited liability company and investment adviser registered with the SEC under the Advisers Act; (D) Deutsche Bank Trust Company Americas, a corporation organized under the laws of the State of New York and supervised by the New York State Department of Financial Services, a member of the Federal Reserve and an FDIC-insured bank; (E) Deutsche Bank National Trust Company, a national banking association, organized under the laws of the United States and supervised by the Office of the Comptroller of the Currency, and a member of the Federal Reserve; (F) Deutsche Bank Trust Company, NA, a national banking association, organized under the laws of the United States and supervised by the OCC; (G) Deutsche Alternative Asset Management (Global) Limited, a London-based investment adviser registered with the SEC under the Advisers Act; (H) Deutsche Investments Australia Limited, a Sydney, Australia-based investment adviser registered with the SEC under the Advisers Act; (I) DeAWM Trust Company (DTC), a limited purpose trust company organized under the laws of New Hampshire and subject to supervision of the New Hampshire Banking Department; and the four following entities which currently do not rely on PTE 84-14 for the management of any ERISA-covered plan or IRA assets, but may in the future: (J) Deutsche Asset Management (Hong Kong) Ltd.; (K) Deutsche Asset Management International GmbH; (L) DB Investment Managers, Inc.; and (M) Deutsche Bank AG, New York Branch.

3.
Korean Conviction.
On January 25, 2016, Deutsche Securities Korea, Co. (DSK), an indirectly held, wholly-owned subsidiary of Deutsche Bank, was convicted in Seoul Central District Court (the Korean Court) of violations of certain provisions of Articles 176, 443, and 448 of the Korean Financial Investment Services and Capital Markets Act (FSCMA) (the Korean Conviction) for spot/futures linked market manipulation in connection with the unwind of an arbitrage position which in turn caused a decline on the Korean market. Charges under Article 448 of the FSCMA stemmed from vicarious liability assigned to DSK for the actions of its employee, who was convicted of violations of certain provisions of Articles 176 and 443 of the FCMA. Upon conviction, the Korean Court sentenced DSK to pay a criminal fine of 1.5 billion South Korean Won (KRW). Furthermore, the Korean Court ordered that Deutsche Bank forfeit KRW 43,695,371,124, while KRW 1,183,362,400 was ordered forfeited by DSK.

4.
US Conviction.
On April 23, 2015, the Antitrust Division and Fraud Section of the Criminal Division of the U.S. Department of Justice (collectively, the DOJ) filed a one-count criminal information (the Criminal Information) in Case 3:15-cr-00062-RNC in the District Court for the District of Connecticut (the District Court) against DB Group Services UK Limited (DB Group Services). The Criminal Information charged DB Group Services with wire fraud in violation of Title 18, United States Code, Section 1343 related to the manipulation of the London Interbank Offered Rate (LIBOR) for the purpose of creating favorable trading positions for Deutsche Bank traders. DB Group Services agreed to resolve the actions brought by the DOJ through a plea agreement, dated April 23, 2015 (the Plea Agreement), which is expected to result in the District Court issuing a judgment of conviction (the US Conviction and together with the Korean Conviction, the Convictions). Under the terms of the Plea Agreement, DB Group Services plead guilty to the charges set out in the Criminal Information and forfeited $150,000,000 to the United States. Furthermore, Deutsche Bank AG and the DOJ entered into a deferred prosecution agreement, dated April 23, 2015 (the DPA). Pursuant to the terms of the DPA, Deutsche Bank agreed to pay a penalty of $625,000,000.

PTE 84-14

5. The Department notes that the rules set forth in section 406 of the Employee Retirement Income Security Act of 1974, as amended (ERISA) and section 4975(c) of the Internal Revenue Code of 1986, as

amended (the Code) proscribe certain “prohibited transactions” between plans and related parties with respect to those plans, known as “parties in interest.”
8

Under section 3(14) of ERISA, parties in interest with respect to a plan include, among others, the plan fiduciary, a sponsoring employer of the plan, a union whose members are covered by the plan, service providers with respect to the plan, and certain of their affiliates. The prohibited transaction provisions under section 406(a) of ERISA prohibit, in relevant part, sales, leases, loans or the provision of services between a party in interest and a plan (or an entity whose assets are deemed to constitute the assets of a plan), as well as the use of plan assets by or for the benefit of, or a transfer of plan assets to, a party in interest.
9

8
For purposes of the Summary of Facts and Representations, references to specific provisions of Title I of ERISA, unless otherwise specified, refer also to the corresponding provisions of the Code.

9
The prohibited transaction provisions also include certain fiduciary prohibited transactions under section 406(b) of ERISA. These include transactions involving fiduciary self-dealing; fiduciary conflicts of interest, and kickbacks to fiduciaries.

6. Under the authority of ERISA section 408(a) and Code section 4975(c)(2), the Department has the authority to grant exemptions from such “prohibited transactions” in accordance with the procedures set forth in 29 CFR part 2570, subpart B (76 FR 66637, 66644, October 27, 2011).

7. Class Prohibited Transaction Exemption 84-14 (PTE 84-14)
10

exempts certain prohibited transactions between a party in interest and an “investment fund” (as defined in Section VI(b) of PTE 84-14)
11

in which a plan has an interest, if the investment manager satisfies the definition of “qualified professional asset manager” (QPAM) and satisfies additional conditions for the exemption. In this regard, PTE 84-14 was developed and granted based on the essential premise that broad relief could be afforded for all types of transactions in which a plan engages only if the commitments and the investments of plan assets and the negotiations leading thereto are the sole responsibility of an independent, discretionary, manager.
12

Deutsche Bank has corporate relationships with a wide range of entities that may act as QPAMs and utilize the exemptive relief provided in PTE 84-14.

10
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).

11
An “investment fund” includes single customer and pooled separate accounts maintained by an insurance company, individual trusts and common, collective or group trusts maintained by a bank, and any other account or fund to the extent that the disposition of its assets (whether or not in the custody of the QPAM) is subject to the discretionary authority of the QPAM.

12
See 75 FR 38837, 38839 (July 6, 2010).

8. However, Section I(g) of PTE 84-14 prevents an entity that may otherwise meet the definition of QPAM from utilizing the exemptive relief provided by PTE 84-14, for itself and its client plans, if that entity or an affiliate thereof or any owner, direct or indirect, of a 5 percent or more interest in the QPAM has, within 10 years immediately preceding the transaction, been either convicted or released from imprisonment, whichever is later, as a result of certain specified criminal activity described in that section. The Department notes that Section I(g) was included in PTE 84-14, in part, based on the expectation that a QPAM, and those who may be in a position to influence its policies, maintain a high standard of integrity.
13

Accordingly, as a result of the Korean Conviction and the US Conviction, QPAMs with certain corporate relationships to DSK and DB Group Services, as well as their client plans that are subject to Part 4 of Title I of ERISA (ERISA-covered plans) or section 4975 of the Code (IRAs), will no longer be able to rely on PTE 84-14 without an individual exemption issued by the Department.

13
See 47 FR 56945, 56947 (December 21, 1982).

The DB QPAMs

9. Deutsche Bank represents that certain current and future “affiliates” of DSK and DB Group Services, as that term is defined in Section VI(d) of PTE 84-14, may act as QPAMs in reliance on the relief provided in PTE 84-14 (these entities are collectively referred to as the “DB QPAMs” or the “Applicant”). The DB QPAMs are currently comprised of several wholly-owned direct and indirect subsidiaries of Deutsche Bank including: (A) DIMA; (B) Deutsche Bank Securities Inc., which is a dual-registrant with the SEC under the Advisers Act as an investment adviser and broker-dealer; (C) RREEF America L.L.C., a Delaware limited liability company and investment adviser registered with the SEC under the Advisers Act; (D) Deutsche Bank Trust Company Americas, a corporation organized under the laws of the State of New York and supervised by the New York State Department of Financial Services, a member of the Federal Reserve and an FDIC-insured bank; (E) Deutsche Bank National Trust Company, a national banking association, organized under the laws of the United States and supervised by the Office of the Comptroller of the Currency, and a member of the Federal Reserve; (F) Deutsche Bank Trust Company, NA, a national banking association, organized under the laws of the United States and supervised by the OCC; (G) Deutsche Alternative Asset Management (Global) Limited, a London-based investment adviser registered with the SEC under the Advisers Act; (H) Deutsche Investments Australia Limited, a Sydney, Australia-based investment adviser registered with the SEC under the Advisers Act; (I) DeAWM Trust Company (DTC), a limited purpose trust company organized under the laws of New Hampshire and subject to supervision of the New Hampshire Banking Department; and the four following entities which currently do not rely on PTE 84-14 for the management of any ERISA-covered plan or IRA assets, but may in the future: (J) Deutsche Asset Management (Hong Kong) Ltd.; (K) Deutsche Asset Management International GmbH; (L) DB Investment Managers, Inc.; and (M) Deutsche Bank AG, New York Branch.
14

14
For reasons described below, exemptive relief to rely on PTE 84-14 notwithstanding the Convictions is not being proposed for DBSI and the branches of Deutsche Bank AG (including the NY Branch), and as such, these entities are excluded from the definition of “DB QPAM” for purposes of the operative language of this proposed temporary exemption.

10. DIMA notes that discretionary asset management services are provided to ERISA-covered plans, IRAs and others under the following Asset & Wealth Management (AWM) business lines, each of which may be served by one or more of the DB QPAMs: (A) Wealth Management—Private Client Services and Wealth Management—Private Bank ($178.1 million in ERISA assets, $643.9 million in IRA assets and $1.8 million in rabbi trust assets); (B) Active Management ($299 million in ERISA assets, $227.9 million in governmental plan assets, and $141.7 million in rabbi trust assets); (C) Alternative and Real Assets ($7.4 billion in ERISA-covered and governmental plan assets);
15

(D) Alternatives & Fund Solutions ($20.8 million in ERISA accounts, $29 million in IRA holdings and $14.1 million in governmental plan holdings); and (E) Passive Management

(no current ERISA or IRA assets).
16

Finally, DTC manages the DWS Stock Index Fund, a collective investment trust with $192 million in assets as of March 31, 2015.

15
The Alternatives and Real Assets business line also provides discretionary asset management services, through a separately managed account, to one church plan with total assets under management of $168.6 million and, through a pooled fund subject to ERISA, to two church plans with total assets under management of $7.9 million. According to Deutsche Bank, with respect to governmental plan assets, most management agreements are contractually subject to ERISA standards.

16
With the exception of Passive Management, the statistics for each of the individual business lines listed here have been updated by Deutsche Bank and are current as of June 30, 2015, to the best of Deutsche Bank's knowledge.

11. The Applicant represents that the AWM business is separate from Group Services. The DB QPAMs that serve the AWM business have their own boards of directors. The Applicant represents that the AWM business has its own legal and compliance teams. The Applicant further notes that the DB QPAMs are subject to certain policies and procedures that are designed to, among other things, ensure that asset management decisions are made without inappropriate outside influence, applicable law and governing documents are followed, personnel act with professionalism and in the best interests of clients, clients are treated fairly, confidential information is protected, conflicts of interest are avoided, errors are reported and a high degree of integrity is maintained.

Market Manipulation Activities of DSK
17

17
The Department has incorporated the facts related to the circumstances leading to the Korean Conviction as represented by Deutsche Bank in Application No. D-11696 and included in the
Federal Register
in the notice of proposed exemption for the aforementioned application at 80 FR 51314 (August 24, 2015).

12. Deutsche Securities Korea Co. (DSK), an indirect wholly-owned subsidiary of Deutsche Bank, is a broker-dealer organized in Korea and supervised by the Financial Supervisory Service in Korea. The Absolute Strategy Group (ASG) of Deutsche Bank's Hong Kong Branch (DB HK) conducts index arbitrage trading for proprietary accounts in Asian markets, including Korea. On January 25, 2016, DSK was convicted in Seoul Central District Court (the Korean Court), under Articles 176, 443, and 448 of South Korea's Financial Investment Services and Capital Markets Act (FSCMA) for spot/futures-linked market price manipulation. The Korean Court issued a written decision (the Korean Decision) in connection with the Korean Conviction.

13. Deutsche Bank represents that index arbitrage trading is a trading strategy through which an investor such as Deutsche Bank seeks to earn a return by identifying and exploiting a difference between the value of futures contracts in respect of a relevant equity index and the spot value of the index, as determined by the current market price of the constituent stocks. For instance, where the futures contracts are deemed to be overpriced by reference to the spot value of the index (
i.e.,
if the premium is sufficiently large), then an index arbitrageur will short sell the relevant futures contracts (either the exchange-traded contracts or the put and call option contracts which together synthetically replicate the exchange-traded futures contracts) and purchase the underlying stocks. The short and long positions offset each other in order to be hedged (although the positions may not always be perfectly risk-neutral).

14. Deutsche Bank represents that ASG pursued an index arbitrage trading strategy in various Asian markets, including Korea. In Korea, the index arbitrage position involved the Korean Composite Stock Price Index (KOSPI 200 Index), which reflects stocks commonly traded on the Korea Exchange (KRX). Deutsche Bank represents that, while ASG tried to track the KOSPI 200 Index as closely as possible, there is a limit on foreign ownership for certain shares such as telecommunication companies. Thus, once ASG's cash position reached this limitation, DSK carried the remainder and ASG's book, combined with DSK's book for Korea telecommunication companies, reflected ASG's overall KOSPI 200 index arbitrage position.

15. On November 11, 2010, the Applicant states that ASG “unwound” an arbitrage position on the KOSPI 200 Index through DSK.
18

The “unwind” included a sale of $2.1 billion worth of stocks in the KRX during the final 10 minutes of trading (
i.e.,
the closing auction period) and comprised 88% of the volume of stock traded during this period. This large volume sale contributed to a drop of the KOSPI 200 Index by 2.7%.

18
The Department understands the “unwinding” of a transaction to mean closing out a relatively complicated investment position. For example, an investor who practices arbitrage by taking one position in stocks and the opposite position in option contracts would have to unwind by the date on which the options would expire. This would entail selling the underlying stocks and covering the options.

16. Prior to the unwinding, but after the decision to unwind was made, ASG had taken certain derivative positions, including put options on the KOSPI 200 Index. Thus, ASG earned a profit when the KOSPI 200 Index declined as a result of the unwind trades (the derivative positions and unwind trades cumulatively referred to as the Trades). DSK had also purchased put options on that day that resulted in it earning a profit as a result of the drop of the KOSPI 200 Index. The aggregate amount of profit earned from such Trades was approximately $40 million.

17. The Seoul Central District Prosecutor's Office (the Korean Prosecutors) alleged that the Trades constitute spot/futures linked market manipulation, a criminal violation under Korean securities law. In this regard, the Korean Prosecutors alleged that ASG unwound its cash position of certain securities listed on the KRX(spot) through DSK, and caused a fluctuation in the market price of securities related to exchange-traded derivatives (the put options) for the purpose of gaining unfair profit from such exchange-traded derivatives. On August 19, 2011, the Korean Prosecutors indicted DSK and four individuals on charges of stock market manipulation to gain unfair profits. Two of the individuals, Derek Ong and Bertrand Dattas, worked for ASG at DB HK. Mr. Ong was a Managing Director and head of ASG, with power and authority with respect to the KOSPI 200 Index arbitrage trading conducted by Deutsche Bank. Mr. Dattas served as a Director of ASG and was responsible for the direct operations of the KOSPI 200 Index arbitrage trading. Philip Lonergan, the third individual, was employed by Deutsche Bank Services (Jersey) Limited. At the time of the transaction, Mr. Lonergan was seconded to DB HK and served as Head of Global Market Equity, Trading and Risk. Mr. Lonergan served as Mr. Ong's regional superior and was in charge of risk management for his team. The fourth individual charged, Do-Joon Park, was employed by DSK, serving as a Managing Director of Global Equity Derivatives (GED) at DSK and was in charge of the index arbitrage trading using DSK's book that had been integrated into and managed by ASG. Mr. Park was also a de facto chief officer of equity and derivative product operations of DSK.

18. The Korean Prosecutors' case against DSK was based on Korea's criminal vicarious liability provision, under which DSK may be held vicariously liable for an act of its employee (
i.e.,
Mr. Park) if it failed to exercise due care in the appointment and supervision of its employees.
19

19
Article 448 of the FSCMA allows for charges against an employer stemming from vicarious liability for the actions of its employees.

19. The trial commenced in January 2012 in the Korean Court. The Korean Court convicted both DSK and Mr. Park on January 25, 2016. The Korean Court sentenced Mr. Park to five years imprisonment. Upon conviction, the

Korean Court ordered DSK to pay a criminal fine of KRW 1.5 billion. Furthermore, the Korean Court ordered that Deutsche Bank forfeit KRW 43,695,371,124, while KRW 1,183,362,400 was ordered forfeited by DSK.
20

20
KRW refers to a South Korean Won.

LIBOR Manipulation Activities by DB Group Services

20. DB Group Services is an indirect wholly-owned subsidiary of Deutsche Bank located in the United Kingdom. On April 23, 2015, DB Group Services pled guilty 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. 1343 (the Plea Agreement), related to the manipulation of the London Interbank Offered Rate (LIBOR) described below. In connection with the Plea Agreement with DB Group Services, the DOJ filed a Statement of Fact (the DOJ Plea Factual Statement) that details the underlying conduct that serves as the basis for the criminal charges and impending US Conviction.

21. According to the DOJ Plea Factual Statement, LIBOR is a benchmark interest rate used in financial markets around the world. Futures, options, swaps, and other derivative financial instruments traded in the over-the-counter market. The LIBOR for a given currency is derived from a calculation based upon submissions from a panel of banks for that currency (the Contributor Panel) selected by the British Bankers' Association (BBA). Each member of the Contributor Panel would submit its rates electronically. Once each Contributor Panel bank had submitted its rate, the contributed rates were ranked. The highest and lowest quartiles were excluded from the calculation, and the middle two quartiles (
i.e.,
50% of the submissions) were averaged to formulate the LIBOR “fix” or “setting” for the given currency and maturity.

22. The DOJ Plea Factual Statement states that, from 2006 to 2011, Deutsche Bank's Global Finance and Foreign Exchange business units (GFFX) had employees in multiple entities associated with Deutsche Bank, in multiple locations around the world including London and New York. Deutsche Bank, through the GFFX unit, employed traders in both its Pool Trading groups (Pool) and its Money Market Derivatives (MMD) groups. Many of the GFFX traders based in London were employed by DB Group Services.

23. According to the DOJ Plea Factual Statement, Deutsche Bank's Pool traders engaged in, among other things, cash trading and overseeing Deutsche Bank's internal funding and liquidity. Deutsche Bank's Pool traders traded a variety of financial instruments. Deutsche Bank's Pool traders were primarily responsible for formulating and submitting Deutsche Bank's LIBOR and EURIBOR daily contributions. Deutsche Bank's MMD traders, on the other hand, were responsible for, among other things, trading a variety of financial instruments, some of which, such as interest rate swaps and forward rate agreements, were tied to LIBOR and EURIBOR. The DOJ Plea Factual Statement notes that both the Pool traders and the MMD traders worked in close proximity and reported to the same chain of command. DB Group Services employed many of Deutsche Bank's London-based Pool and MMD traders.

24. Deutsche Bank and DB Group Services's derivatives traders (the Derivatives Traders) were responsible for trading a variety of financial instruments, some of which, such as interest rate swaps and forward rate agreements, were tied to reference rates such as LIBOR and EURIBOR. According to the DOJ Plea Factual Statement, from approximately 2003 through at least 2010, the Derivatives Traders defrauded their counterparties by secretly manipulating U.S. Dollar (USD), Yen, and Pound Sterling LIBOR, as well as the EURO Interbank Offered Rate (EURIBOR, and collectively, the IBORs or IBOR). The Derivatives Traders requested that the IBOR submitters employed by Deutsche Bank and other banks send in IBORs that would benefit the Derivatives Traders' trading positions, rather than rates that complied with the definitions of the IBORs. According to the DOJ, Deutsche Bank employees engaged in this collusion through face-to-face requests, electronic communications, which included both emails and electronic chats, and telephone calls.

25. The DOJ Plea Factual Statement explains that when the Derivatives Traders' requests for favorable IBOR submissions were taken into account by the submitters, the resultant contributions affected the value and cash flows of derivatives contracts, including interest rate swap contracts. In accommodating these requests, the Derivatives Traders and submitters were engaged in a deceptive course of conduct in an effort to gain an advantage over their counterparties. As part of this effort: (1) The Deutsche Bank Pool and MMD Traders submitted materially false and misleading IBOR contributions; and (2) Derivatives Traders, after initiating and continuing their effort to manipulate IBOR contributions, entered into derivative transactions with counterparties that did not know that the Deutsche Bank personnel were often manipulating the relevant rate.

26. The DOJ Plea Factual Statement notes that from 2003 through at least 2010, DB Group Services employees regularly sought to manipulate USD LIBOR to benefit their trading positions and thereby benefit themselves and Deutsche Bank. During most of this period, traders at Deutsche Bank who traded products linked to USD LIBOR were primarily located in London and New York. DB Group Services employed almost all of the USD LIBOR traders who were located in London and involved in the misconduct. Throughout the period during which the misconduct occurred, the Deutsche Bank USD LIBOR submitters in London sat within feet of the USD LIBOR traders. This physical proximity enabled the traders and submitters to conspire to make and solicit requests for particular LIBOR submissions.

27. Pursuant to the Plea Agreement that DB Group Services entered into with the DOJ on April 23, 2015, pleading guilty to wire fraud for manipulation of LIBOR, DB Group Services also agreed: (A) To work with its parent company (Deutsche Bank) in fulfilling obligations undertaken by the Bank in connection with its own settlements; (B) to continue to fully cooperate with the DOJ and any other law enforcement or government agency designated by the DOJ in a manner consistent with applicable laws and regulations; and (C) to pay a fine of $150 million.

28. On April 23, 2015, Deutsche Bank AG entered into a deferred prosecution agreement (DPA) with the DOJ, in disposition of a 2-count criminal information charging Deutsche Bank with one count of wire fraud, in violation of Title 18, United States Code, Section 1343, and one count of price-fixing, in violation of the Sherman Act, Title 15, United States Code, Section 1. By entering into the DPA, Deutsche Bank AG agreed, among other things: (A) To continue to cooperate with the DOJ and any other law enforcement or government agency; (B) to retain an independent compliance monitor for three years, subject to extension or early termination, to be selected by the DOJ from among qualified candidates proposed by the Bank; (C) to further strengthen its internal controls as recommended by the monitor and as required by other settlements; and (D) to pay a penalty of $625 million.

29. On April 23, 2015, Deutsche Bank AG and Deutsche Bank AG, New York Branch (DB NY) also entered into a consent order with the New York State Department of Financial Services (NY DFS) in which Deutsche Bank AG and DB NY agreed to pay a penalty of $600 million. Furthermore, Deutsche Bank AG and DB NY engaged an independent monitor selected by the NY DFS in the exercise of the NY DFS's sole discretion, for a 2-year engagement. Finally, the NY DFS ordered that certain employees involved in the misconduct be terminated, or not be allowed to hold or assume any duties, responsibilities, or activities involving compliance, IBOR submissions, or any matter relating to U.S. or U.S. Dollar operations.

30. Furthermore, the United States Commodities Futures Trading Commission (CFTC) entered a consent order, dated April 23, 2015, requiring Deutsche Bank AG to cease and desist from certain violations of the Commodity Exchange Act, to pay a fine of $800 million, and to agree to certain undertakings.

31. The United Kingdom's Financial Conduct Authority (FCA) issued a final notice (Final Notice), dated April 23, 2015, imposing a fine of £226.8 million on Deutsche Bank AG. In its Final Notice, the FCA cited Deutsche Bank's inadequate systems and controls specific to IBOR. The FCA noted that Deutsche Bank had defective systems to support the audit and investigation of misconduct by traders; and Deutsche Bank's systems for identifying and recording traders' telephone calls and for tracing trading books to individual traders were inadequate. The FCA's Final Notice provided that Deutsche Bank took over two years to identify and produce all relevant audio recordings requested by the FCA. Furthermore, according to the Final Notice, Deutsche Bank gave the FCA misleading information about its ability to provide a report commissioned by Bundesanstalt für Finanzdienstleistungsaufsicht, Germany's Federal Financial Supervisory Authority (BaFin). In addition, the FCA notes in its Final Notice that Deutsche Bank provided it with a false attestation that stated that its systems and controls in relation to LIBOR were adequate, an attestation known to be false by the person who drafted it. The Final Notice provides that, in one instance, Deutsche Bank, in error, destroyed 482 tapes of telephone calls, despite receiving an FCA notice requiring their preservation, and provided inaccurate information to the regulator about whether other records existed.

32. Finally, BaFin set forth preliminary findings based on an audit of LIBOR related issues in a May 15, 2015, letter to Deutsche Bank. At that time, BaFin raised certain questions about the extent of certain senior managers' possible awareness of wrongdoing within Deutsche Bank.

Prior and Anticipated Convictions and Failure To Comply With Section I(g) of PTE 84-14

33. The Korean Conviction caused the DB QPAMs to violate Section I(g) of PTE 84-14. As a result, the Department granted, and later extended the effective period for, PTE 2015-15, which allows the DB QPAMs to rely on the relief provided by PTE 84-14, notwithstanding the January 25, 2016 Korean Conviction. The Department granted, and extended, PTE 2015-15 in order to protect ERISA-covered plans and IRAs from IRAs from certain costs and/or investment losses that could have occurred to the extent the DB QPAMs lost their ability to rely on PTE 84-14 as a result of the Korean Conviction. PTE 2015-15 and its extension, PTE 2016-12 (81 FR 75153, October 28, 2016) (the Extension) are subject to enhanced conditions that are protective of the rights of the participants and beneficiaries of affected ERISA-covered plans and IRAs.

34. The Applicant represents that date on which the US Conviction will be entered (the U.S. Conviction Date) is tentatively scheduled for April 3, 2017, will also cause DB QPAMs to violate Section I(g) of PTE 84-14. Therefore, Deutsche Bank requests a single, new exemption that would permit the DB QPAMs, and their ERISA-covered plan and IRA clients, to continue to utilize the relief in PTE 84-14, notwithstanding both the Korean Conviction and the US Conviction.

35. The Department is proposing a temporary exemption herein to allow the DB QPAMs to rely on PTE 84-14 notwithstanding the Korean Conviction and the US Conviction, subject to a comprehensive suite of protective conditions designed to protect the rights of the participants and beneficiaries of the ERISA-covered plans and IRAs that are managed by DB QPAMs. This proposed temporary exemption would be effective for a period of up to one year beginning on the U.S. Conviction Date; and ending on the earlier of the date that is twelve months after 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. In this regard, elsewhere today in the
Federal Register
, the Department is proposing Exemption Application No. D-11908, a five-year proposed exemption subject to enhanced protective conditions that would provide the same exemptive relief that is described herein, but for a longer effective period.

This temporary exemption will allow the Department sufficient time to contemplate whether or not to grant the five-year exemption without risking the sudden loss of exemptive relief for the DB QPAMs upon the expiration of the relief provided by the Extension. The Extension expires upon the earlier of April 23, 2017 or the effective date of a final agency action in connection with this proposed temporary exemption (
e.g.,
the Department denies or grants this proposed temporary exemption).

36. This temporary exemption will not apply to Deutsche Bank Securities, Inc. (DBSI).
21

Section I(a) of PTE 2015-15, as well as this proposed temporary exemption, requires that “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 that is the subject of the [Korean] Conviction.” In a letter to the Department dated July 15, 2016, Deutsche Bank raised the possibility that an individual,
22

while employed at DBSI, may have known or had reason to know of the criminal conduct of DSK that is the subject of the Korean Conviction. In a letter to the Department dated August 19, 2016, Deutsche Bank further clarified that “there is no evidence that anyone at DBSI other than Mr. Ripley knew in advance of the trades conducted by the Absolute Strategy Group on November 11, 2010.” Deutsche Bank states that it had previously interpreted Section I(a) of PTE 2015-15 as requiring only that “any current director, officer or employee did not know of, have reason to know of, or participate in the conduct.” The Department notes that Deutsche Bank did not raise any interpretive questions regarding Section I(a) of PTE 2015-15, or express any concerns regarding DBSI's possible noncompliance, during the comment period for PTE 2015-15. Nor did Deutsche Bank seek a technical

correction or other remedy to address such concerns between the time that PTE 2015-15 was granted and the date of the Korean Conviction. The Department notes that a period of approximately nine months passed before Deutsche Bank raised an interpretive question regarding Section I(a) of PTE 2015-15. Accordingly, the Department is not proposing exemptive relief for DBSI in this temporary exemption.

21
The Applicant represents that DBSI has not relied on the relief provided by PTE 84-14 since the date of the Korean Conviction.

22
The Applicant identifies the individual as Mr. John Ripley, a senior global manager in DBSI who was based in the United States and who was a functional supervisor over the employees of DSK that were prosecuted for market manipulation. Furthermore, the Applicant states that Mr. Ripley was terminated by DBSI for “loss of confidence” in that he could have exercised more care and been more proactive in reviewing the trades at issue.

This temporary exemption will also not apply with respect to Deutsche Bank AG (the parent entity) or any of its branches. The Applicant represents that neither Deutsche Bank AG nor its branches have relied on the relief provided by PTE 84-14 since the date of the Korean Conviction.

37. Finally, the Applicant represents that it currently does not have a reasonable basis to believe that any pending criminal investigation
23

of any of Deutsche Bank's affiliated corporate entities would cause a reasonable plan or IRA customer not to hire or retain the Bank's affiliated managers as a QPAM. Furthermore, this temporary exemption will not apply to any other conviction(s) of Deutsche Bank or its affiliates for crimes described in Section I(g) of PTE 84-14. The Department notes that, in such event, the Applicant and its ERISA-covered plan and IRA clients should be prepared to rely on exemptive relief other than PTE 84-14 for any prohibited transactions entered into after the date of such new conviction(s); withdraw from any arrangements that solely rely on PTE 84-14 for exemptive relief; or avoid engaging in any such prohibited transactions in the first place.

23
The Applicant references the Deutsche Bank AG Form 6-K, filed July 27, 2016, available at:
https://www.db.com/ir/en/download/6_K_Jul_2016.pdf
; and the Deutsche Bank AG Form 10-F filed March 11, 2016 and available at:
https://www.db.com/ir/en/download/Deutsche_Bank_20_F_2015.pdf
.

Remedial Measures To Address Criminal Conduct of DSK

38. Deutsche Bank represents that it has voluntarily disgorged its profits generated from exercising derivative positions and put options in connection with the activity associated with the Korean Conviction. DSK also suspended its proprietary trading from April 2011 to 2012, and thereafter DSK only engaged in limited proprietary trading (but not index arbitrage trading).
24

Further, in response to the actions of the Korean Prosecutors, Deutsche Bank enhanced its compliance measures and implemented additional measures in order to ensure compliance with applicable laws in Korea and Hong Kong, as well as within other jurisdictions where Deutsche Bank conducts business.

24
Deutsche Bank notes that DSK was never permitted to trade on behalf of Deutsche Bank.

39. Deutsche Bank states that Mr. Ong and Mr. Dattas were terminated for cause by DB HK on December 6, 2011, and Mr. Lonergan was terminated on January 31, 2012. In addition, Mr. Park was suspended for six months due to Korean administrative sanctions, and remained on indefinite administrative leave, until being terminated effective January 25, 2016. John Ripley, a New York-based employee of Deutsche Bank Securities Inc. (DBSI) who was not indicted, was also terminated in October 2011.
25

25
According to the Korean prosecutors, Mr. Ripley served as a Head of Global ASG of Deutsche Bank, AG, and was a functional superior to Mr. Ong. Mr. Ripley was suspected of having advised to unwind all the KOSPI 200 index arbitrage trading for the purpose of management of the ending profits and losses of Global ASK and approved Mr. Ong's request to establish the speculative positions in the course of the unwinding. Though the Korean prosecutors named Mr. Ripley as a suspect, he was not named in the August 19, 2011, Writ of Indictment.

Remedial Measures To Address Criminal Conduct of DB Group Services

40. Deutsche Bank represents that it has significantly modified its compensation structure. Specifically, Deutsche Bank: Eliminated the use of “percentage of trading profit” contracts once held by two traders involved in the LIBOR case; extended the vesting/distribution period for deferred compensation arrangements; made compliance with its internal policies a significant determinant of bonus awards; and modified its compensation plans to facilitate forfeiture/clawback of compensation when employees are found after the fact to have engaged in wrongdoing. Deutsche Bank represents that the forfeiture/clawback provisions of its compensation plans have been altered so as to permit action against employees even when misconduct is discovered years later.

41. With respect to the LIBOR-related misconduct, Deutsche Bank represents that it has separated from or disciplined the employees responsible. With the exceptions described below, none of the employees determined to be responsible for the misconduct remains employed by Deutsche Bank. Deutsche Bank represents that, during the initial phase of its internal investigation into the LIBOR matters, it terminated the two employees most responsible for the misconduct, including the Global Head of Money Market and Derivatives Trading.

42. Deutsche Bank then terminated five benchmark submitters in its Frankfurt office, including the Head of Global Finance and Foreign Exchange in Frankfurt. Four of these employees successfully challenged their termination in a German Labor court, and one employee entered into a separation agreement with Deutsche Bank after initially indicating that he would challenge the termination decision. With respect to the four employees who challenged their termination, the Bank agreed to mediate the employee labor disputes and reached settlements with the four employees. Pursuant to the settlements, the two more senior employees remained on paid leave through the end of 2015 and then have no association with Deutsche Bank. The two more junior employees have returned to the Bank in non-risk-taking roles. They do not work for any DB QPAMs and have no involvement in the Bank's AWM business or the setting of interest rate benchmarks. Deutsche Bank represents that it also terminated four additional individuals, and another eight individuals left the bank before facing disciplinary action.

43. Deutsche Bank represents that it will take action to terminate any additional employees who are determined to have been involved in the improper benchmark manipulation conduct, as well as those who knew about it and approved it. Moreover, the Applicant states that Deutsche Bank has taken further steps, both on its own and in consultation with U.S. and foreign regulators, to discipline those whose performance fell short of DB's expectations in connection with the above-described conduct.

Statutory Findings—In the Interests of Affected Plans and IRAs

44. The Applicant represents that the proposed exemption is in the interests of affected ERISA-covered plans and IRAs. Deutsche Bank represents that the DB QPAMS provide discretionary asset management services under several business lines, including (A) Alternative and Real Assets (ARA); (B) Alternatives & Fund Solutions (AFS); (C) Active Management (AM); and (D) Wealth Management—Private Client Services and Wealth Management—Private Bank. Deutsche Bank asserts that plans will incur direct transaction costs in liquidating and reinvesting their portfolios. According to Deutsche Bank, the direct transaction costs of liquidating and reinvesting ERISA-covered plan, IRA and ERISA-like assets

under the various business lines (other than core real estate) could range from 2.5 to 25 basis points, resulting in an estimated dollar cost of approximately $5-7 million. Deutsche Bank also states that an unplanned liquidation of the Alternatives and Real Assets business' direct real estate portfolios could result in portfolio discounts of 10-20% of gross asset value, in addition to transaction costs ranging from 30 to 100 basis points, for estimated total cost to plan investors of between $281 million and $723 million, depending on the liquidation period.

45. Deutsche Bank states that its managers provide discretionary asset management services, through both separately managed accounts and four pooled funds subject to ERISA, to a total of 46 ERISA-covered plan accounts, with total assets under management (AuM) of $1.1 billion. Deutsche Bank estimates that the underlying plans cover in total at least 640,000 participants. Deutsche Bank represents that its managers provide asset management services, through both separately managed accounts and pooled funds subject to ERISA, to a total of 22 governmental plan accounts, with total AuM of $7.1 billion. The underlying plans cover at least 3 million participants. With respect to church plans and rabbi trust accounts, Deutsche Bank investment managers separately manage accounts and a pooled fund subject to ERISA, to a total of 4 church plan and rabbi trust accounts, with total AuM of $318.3 million. With respect to ERISA-covered Plan, IRA, Governmental Plan and Church Plan Accounts in Non-Plan Asset Pooled Funds, Deutsche Bank represents that its asset managers manages 175 ERISA-covered plan accounts with interests totaling $4.23 billion, 178 IRAs with interests totaling $29 million, 66 governmental plan accounts with interests totaling $2.08 billion, and 14 church plan accounts with interests totaling $67.1 million.

46. Deutsche Bank contends that ERISA-covered, IRA, governmental plan and other plan investors that terminate or withdraw from their relationship with their DB QPAM manager may be harmed in several specific ways, including: The costs of searching for and evaluating a new manager; the costs of leaving a pooled fund and finding a replacement fund or investment vehicle; and the lack of a secondary market for certain investments and the costs of liquidation.
26

26
The Department notes that, if this temporary exemption is granted, compliance with the condition in Section I(j) of the exemption would require the DB QPAMs to hold their plan customers harmless for any losses attributable to, inter alia, any prohibited transactions or violations of the duty of prudence and loyalty.

47. Deutsche Bank represents that its ARA business line provides discretionary asset management services to, among others, 17 ERISA accounts and 18 governmental plan accounts. The largest account has $1.6 billion in AuM. ERISA-covered and governmental plans total $7.4 billion in AuM. Deutsche Bank estimates that the underlying plans cover at least 2.7 million participants. ARA provides these services through separately managed accounts and pooled funds subject to ERISA. ARA also provides discretionary asset management services, through a separately managed account, to one church plan with total AuM of $168.6 million and, through a pooled fund subject to ERISA, to two church plans with total AuM of $7.9 million.

Deutsche Bank argues that PTE 84-14 is the sole exemption available to ARA for investments in direct real estate for separately managed accounts.

48. Deutsche Bank represents that, as a result of terminating ARA's management, a typical plan client may incur $30,000 to $40,000 in consulting fees in searching for a new manager as well as $10,000 to $30,000 in legal fees. Furthermore, with respect to direct real estate investments, Deutsche Bank states that plan clients may face direct transaction costs of 30-100 basis points for early liquidation, or a $4.8 million to $16 million loss for its largest ARA governmental plan client; as well as a 10-20% discount for early liquidation, or a $162.5 million to $325 million loss for the largest ARA governmental plan client. With respect to non-direct real estate investments, Deutsche Bank states that plan clients may face direct transaction costs of 20-60 basis points, or $933,000 for ARA's largest ERISA client.

49. Deutsche Bank notes that ARA manages seven unregistered real estate investment trusts and other funds that currently rely on one or more exceptions to the Department's plan asset regulation. Interests in the funds are held by 131 ERISA-covered plan accounts, 63 governmental plan accounts and 14 church plan accounts. Deutsche Bank represents that the largest holding in these funds by an ERISA-covered plan account is $647.4 million. Holdings by all ERISA plan accounts in these funds total $4.21 billion. The underlying ERISA-covered plans cover at least 2 million participants. The largest holding by a governmental plan account in these funds is $286.5 million. Holdings of all governmental plan accounts in these funds total $2.07 billion. The underlying plans cover at least 6.1 million participants. The largest holding by a church plan is $16 million. Holdings of all church plans in these funds total $67.1 million.

50. Deutsche Bank represents that its AFS business line manages 28 unregistered, closed-end, private equity funds, with $2.8 billion in total assets, in which ERISA-covered, IRA and governmental plans invest. Interests in these funds are held by, among others, 44 ERISA-covered plan accounts, 178 IRAs and 3 governmental plan accounts. Holdings by all ERISA-covered plan accounts total $20.8 million. Deutsche Bank notes that the underlying plans cover at least 57,000 participants. Holdings by all IRAs total $29 million. Holdings by all governmental plans total $14.1 million. These funds invest primarily in equity interests issued by other private equity funds. The funds currently rely on the 25% benefit plan investor participation exception under the Department's plan asset regulation.

51. Deutsche Bank contends that, in the event the AFS business line cannot rely upon the exemptive relief of PTE 84-14, all plans would have to undertake the time and expense of identifying suitable transferees, accept a discounted sale price, comply with applicable transfer rules and pay the funds a transfer fee, which may run to $5,000 or more. Deutsche Bank states that, in locating a replacement fund, a typical plan could incur 6-8 months of delay, $30,000-$40,000 in consultant fees for a private manager/fund search, 25-50 hours in client time and $10,000-$30,000 in legal fees to review subscription agreements and negotiate side letters.

52. Deutsche Bank represents that its AM business line provides discretionary asset management services to separately managed plan accounts, including five ERISA-covered plan accounts and three governmental plan accounts. The largest ERISA account is $164.2 million. Total ERISA AuM is $299.2 million. The underlying ERISA-covered plans cover at least 143,000 participants. The largest governmental plan account is $164.3 million. Total governmental plan AuM is $227.9 million. The underlying plans cover at least 731,000 participants. Deutsche Bank notes that AM also provides such services to one rabbi trust with total AuM of $141.7 million.

53. Deutsche Bank represents that the AM line manages these accounts with a variety of strategies, including: (A) Equities, (B) fixed income, (C) overlay, (D) commodities, and (E) cash. These strategies involve a range of asset classes

and types, including: (A) U.S. and foreign fixed income (Treasuries, Agencies, corporate bonds, asset-backed securities, mortgage and commercial mortgage-backed securities, deposits); (B) U.S. and foreign mutual funds and ETFs; (C) U.S. and foreign futures, (D) currency; (E) swaps (interest rate and credit default); (F) U.S. and foreign equities; and (G) short term investment funds.

54. Deutsche Bank estimates that, in the event the AM business line cannot rely upon the exemptive relief of PTE 84-14, plan clients would typically incur $30,000 to $40,000 in consulting fees related to a new manager search, up to 5 basis points in direct transaction costs, and $15,000-$30,000 in legal costs to negotiate each new futures, cleared derivatives, swap or other trading agreements.

55. Deutsche Bank represents that its Wealth Management—Private Client Services and Wealth Management—Private Bank business lines manage $178.1 million in ERISA assets, $643.9 million in IRA assets, and $1.8 million of rabbi trust assets (Wealth Management—Private Bank). Deutsche Bank asserts that causing plan clients to change managers will lead the plans and IRAs to incur transaction costs, estimated at 2.5 basis points overall.

Statutory Findings—Protective of the Rights of Participants of Affected Plans and IRAs

56. The Applicant has proposed certain conditions it believes are protective of plans and IRAs with respect to the transactions described herein. The Department has determined to revise and supplement the proposed conditions so that it can make its required finding that the requested exemption is protective of the rights of participants and beneficiaries of affected plans and IRAs.

57. Several of the conditions underscore the Department's understanding, based on Deutsche Bank's representations, that the affected DB QPAMs were not involved in the misconduct that is the subject of the Convictions. The temporary exemption, if granted as proposed, mandates that 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. For purposes of this requirement, “participate in” includes an individual's knowing or tacit approval of the misconduct underlying the Convictions. Furthermore, the DB QPAMs (including their officers, directors, employees, and agents other than Deutsche Bank) cannot have received direct compensation, or knowingly received indirect compensation, in connection with the criminal conduct that is the subject of the Convictions.

58. The proposed temporary exemption defines the Convictions as: (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. 1343 (the US Conviction); 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 (the Korean Conviction). The Department notes that the “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), 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.

59. The Department expects that DB QPAMs will rigorously ensure that the individuals associated with the misconduct will not be employed or knowingly engaged by such QPAMs. In this regard, the proposed temporary exemption mandates that the DB QPAMs will not employ or knowingly engage any of the individuals that knowingly participated in the spot/futures-linked market manipulation or LIBOR manipulation activities that led to the Convictions, respectively. For purposes of this condition, “participated in” includes an individual's knowing or tacit approval of the behavior that is the subject of the Convictions. Further, 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, nor otherwise engage DSK or DB Group Services to provide additional services to such investment fund, for a direct or indirect fee borne by such investment fund, regardless of whether such transaction or services may otherwise be within the scope of relief provided by an administrative or statutory exemption.

60. The DB QPAMs must 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. Further, any failure of the DB QPAMs to satisfy Section I(g) of PTE 84-14 must result solely from the US Conviction and the Korean Conviction.

61. No relief will be provided by this temporary exemption to the extent that a DB QPAM exercised its 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.

Further, no temporary relief will be provided to the extent DSK or DB Group Services provides any 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.

62.
Policies.
The Department believes that robust policies and training are warranted where, as here, extensive criminal misconduct has occurred within a corporate organization that includes one or more QPAMs managing plan investments in reliance on PTE 84-14. Therefore, this proposed temporary exemption requires each DB QPAM to immediately develop, implement, maintain, and follow written policies and procedures (the Policies) requiring and reasonably designed to ensure that: The asset management decisions of the DB QPAM are conducted independently of the corporate management and business activities of Deutsche Bank, including DB Group Services and DSK; the DB QPAM fully complies with ERISA's fiduciary duties and 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; 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; 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; 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; and the DB QPAM complies with the terms of this proposed temporary exemption. Any violation of, or failure to comply with, the Policies must be corrected promptly upon discovery, and any such violation or compliance failure not promptly corrected must be reported, upon discovering the failure to promptly correct, in writing, to appropriate corporate officers, the head of Compliance and the General Counsel of the relevant DB QPAM (or their functional equivalent), 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 Deutsche Bank.
27

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 reports such instance of noncompliance as explained above.

27
With respect to any ERISA-covered plan or IRA sponsored by an “affiliate” (as defined in Part 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.

63.
Training.
The Department has also imposed a condition that requires each DB QPAM to immediately develop and implement a program of training (the Training) 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) and ethical conduct, the consequences for not complying with the conditions of this proposed temporary exemption (including the loss of the exemptive relief provided herein), and prompt reporting of wrongdoing.

64.
Independent Transparent Audit.
The Department views a rigorous, transparent audit that is conducted by an independent party as essential to ensuring that the conditions for exemptive relief described herein are followed by the DB QPAMs. Therefore, Section I(i) of this proposed temporary exemption requires that 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.

This proposed temporary exemption requires that the audit described herein must “look back” to cover the period of time beginning on the effective date of the Extension, October 24, 2016, and ending on the earlier 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 (the Audit Period). The audit must be completed no later than six (6) months after the Audit Period. In order to harmonize the audit required herein with the audit required by the Extension, the audit requirement described in paragraph (i) of this temporary exemption expressly supersedes paragraph (f) of the Extension. However, in determining the DB QPAMs' compliance with the provisions of the Extension and the temporary exemption 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 condition requires that, 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.

The auditor's engagement must specifically require the auditor to determine whether each DB QPAM has complied with the Policies and Training conditions described herein, and must further require the auditor to test each DB QPAM's operational compliance with the Policies and Training. 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.

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. 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. Furthermore, 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.

This proposed temporary exemption requires that certain senior personnel of Deutsche Bank review the Audit Report, make certifications, and take various corrective actions. In this regard, 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 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 proposed temporary exemption and with the applicable provisions of ERISA and the Code. The Risk Committee of Deutsche Bank's Board of Directors is provided a copy of each Audit Report; and a senior executive officer with a direct reporting line to the highest ranking legal 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.

In order to create a more transparent record in the event that the proposed temporary relief is granted, each DB QPAM must provide its certified Audit Report to the Department 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. Additionally, each DB QPAM and the auditor must submit to the Department any engagement agreement(s) entered into pursuant to the engagement of the auditor under this temporary exemption; and 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 proposed 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). Finally, if the temporary exemption is granted, the auditor must provide the Department, 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.

In order to enhance oversight of the compliance with the temporary exemption, Deutsche Bank must notify the Department at least 30 days prior to any substitution of an auditor, and Deutsche Bank must demonstrate to the Department's satisfaction that any new auditor is independent of Deutsche Bank, experienced in the matters that are the subject of the temporary exemption, and capable of making the determinations required of this temporary exemption.

65.
Contractual Obligations.
This proposed temporary exemption requires DB QPAMs to enter into certain contractual obligations in connection with the provision of services to their clients. It is the Department's view that the condition in Section I(j) is essential to the Department's ability to make its findings that the proposed temporary exemption is protective of the rights of the participants and beneficiaries of ERISA-covered plan and IRA clients. In this regard, effective 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 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); to comply with the standards of prudence and loyalty set forth in section 404 of ERISA with respect to each such ERISA-covered plan and IRA; and to indemnify and hold harmless the ERISA-covered plan and IRA for any damages resulting from a DB QPAM's violation of applicable laws, a DB QPAM's breach of contract, or any claim brought in connection with 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. Furthermore, DB QPAMs must agree 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; 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; not 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; 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; and 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.

66. Within four (4) months of the effective date of this proposed temporary exemption, each DB QPAM will provide a notice of its obligations under Section I(j) to each ERISA-covered plan and IRA client for which the DB QPAM provides asset management or other discretionary fiduciary services.

67. Each DB QPAM must maintain records necessary to demonstrate that the conditions of this proposed 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 proposed temporary exemption.

68. Certain of the conditions of the temporary exemption are specifically directed at Deutsche Bank. In this regard, Deutsche Bank must have 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.

69. The proposed temporary exemption mandates that, during the effective period of this temporary exemption, Deutsche Bank: Must (1) immediately disclose to the Department any Deferred Prosecution Agreement (a DPA) or Non-Prosecution Agreement (an NPA) that Deutsche Bank 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 provide 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. In this regard, any conduct that would have constituted a violation of Section I(g) of PTE 84-14 or given rise to the prohibition described under section 411 of ERISA if such conduct had resulted in a conviction, but instead was the subject of a DPA or NPA

between Deutsche Bank or any affiliate of Deutsche Bank and the U.S. Department of Justice, must be disclosed to the Department.

Statutory Findings—Administratively Feasible

70. Deutsche Bank represents that the proposed temporary exemption is administratively feasible because it does not require any monitoring by the Department but relies on an independent auditor to determine that the exemption conditions are being complied with. Furthermore, the requested temporary exemption does not require the Department's oversight because, as a condition of this proposed temporary exemption, neither DB Group Services nor DSK will provide any fiduciary or QPAM services to ERISA covered plans and IRAs.

71. Given the revised and new conditions described above, the Department has tentatively determined that the temporary relief sought by the Applicant satisfies the statutory requirements for an exemption under section 408(a) of ERISA.

Notice to Interested Persons

All written comments and/or requests for a hearing must be received by the Department within five days of the date of publication of this proposed temporary exemption in the
Federal Register
. All comments will be made available to the public. To the extent the Department publishes a proposed exemption that contains more permanent relief for the transactions described herein, the notice of proposed exemption will set forth a notice and comment period that extends at least 45 days.

All comments will be made available to the public.

Warning:
If you submit a comment, EBSA recommends that you include your name and other contact information in the body of your comment, but DO NOT submit information that you consider to be confidential, or otherwise protected (such as Social Security number or an unlisted phone number) or confidential business information that you do not want publicly disclosed. All comments may be posted on the Internet and can be retrieved by most Internet search engines.

FOR FURTHER INFORMATION CONTACT:

Scott Ness of the Department, telephone (202) 693-8561. (This is not a toll-free number.)

Citigroup, Inc. (Citigroup or the Applicant), Located in New York, New York

[Application No. D-11859]
Proposed Temporary Exemption

The Department is considering granting a temporary exemption under the authority of section 408(a) of the Act (or ERISA) and section 4975(c)(2) of the Code, and in accordance with the procedures set forth in 29 CFR part 2570, subpart B (76 FR 66637, 66644, October 27, 2011).
28

28
For purposes of this proposed temporary exemption, references to section 406 of Title I of the Act, unless otherwise specified, should be read to refer as well to the corresponding provisions of section 4975 of the Code.

Section I: Covered Transactions

If the proposed temporary exemption is granted, 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),
29

notwithstanding the judgment of conviction against Citicorp (the Conviction, as defined in Section II(c)),
30

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(d)), provided the following conditions are satisfied:

29
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).

30
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 (for purposes of this paragraph (a), “participate in” includes the knowing or tacit approval of the misconduct underlying 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 the knowing or tacit approval of 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 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;

(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) Citicorp and the Markets and Securities Services business of Citigroup 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;

(h)(1) Within four (4) months of the Conviction, 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, including the corporate management and business activities of the Markets and Securities Services business 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, 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 four (4) months of the date of the Conviction, 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) 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 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, 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;

(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 (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;

(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 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 provid
e
d by PTE 84-14 as a result of a violation

of Section I(g) of PTE 84-14 other than the Conviction;

(2) Within four (4) months of the date of the Conviction, each Citigroup Affiliated QPAM will provide a notice of its 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) with the U.S. Department of Justice to the extent such DPA or NPA involv

[Text truncated at 120,000 characters. The full text is on the page linked above.]

---

Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/fr%3A2016-27563. Public record. Not legal advice.