EBSA Issues Temporary Exemption for Credit Suisse

Credit Suisse AG has received temporary approval to continue acting as a qualified professional asset manager (QPAM), after pleading guilty to criminal charges related to client tax evasion.

The bank applied in July for an exemption from the Department of Labor’s (DOL) Employee Benefits Security Administration (EBSA) to keep its status as a qualified professional asset manager. The QPAM exemption allows asset managers to engage in transactions with parties in interest with respect to retirement plans without running afoul of the prohibited transaction restrictions of the Employee Retirement Income Security Act (ERISA) or the Internal Revenue Code.

The temporary exemption addresses an anti-criminal rule that states a QPAM or any of its affiliates has maintained a clear criminal record on a variety of crimes within 10 years immediately prior to a given transaction. Ambiguities arise particularly during investigations of foreign affiliates in foreign jurisdictions, because the laws of other countries may be enforced differently than they are under U.S. laws, and certain acts that may be “criminal” or “felonies” in this country may be treated differently in other jurisdictions. Credit Suisse is based in Switzerland.

According to EBSA, the temporary exemption will be effective “as of the date a judgment of conviction against Credit Suisse AG for one count of conspiracy to violate section 7206(2) of the Internal Revenue Code in violation of Title 18, United States Code, Section 371 is entered in the District Court for the Eastern District of Virginia in Case Number 1:14-cr-188-RBS and will expire one year from the date of publication in the Federal Register.” A final judgement is expected as soon as today. 

The move comes nearly two months after the DOL first published a notice of proposed exemption for Credit Suisse in the Federal Register, proposing that certain entities with specified relationships to asset manager could continue to rely upon the relief provided by Prohibited Transaction Class Exemption (PTE) 84-14 (49 FR 9494 (March 13, 1984), as corrected at 50 FR 41430 (October 10, 1985), as amended at 70 FR 49305 (August 23, 2005), and as amended at 75 FR  38837 (July 6, 2010)).  

The temporary exemption describes a set of additional conditions, designed to protect plans covered by ERISA, as well as individual retirement accounts, that the entities with specified relationships to Credit Suisse must satisfy in order to rely upon the relief in PTE 84-14.

The exemption was requested by Credit Suisse pursuant to section 408(a) of ERISA and section 4975(c)(2) of the Internal Revenue Code, and in accordance with the procedures set forth in 29 CFR Part 2570, Subpart B (76 FR 66637, 66644, October 27, 2011).

On May 19, 2014, Credit Suisse pleaded guilty to criminal charges that it facilitated tax evasion by helping U.S. clients avoid paying taxes to the Internal Revenue Service. Failing to qualify as a QPAM has a number of significant legal consequences both for the asset manager and for a pension plan that has assets under the QPAM’s management. The QPAM could potentially be liable for a breach of its contracts with ERISA clients to the extent that it made a representation that it qualifies as a QPAM. The plan’s fiduciary could potentially have its own liability in connection with the manager’s transactions under ERISA’s co-fiduciary liability rules. The DOL recently issued a helpful advisory opinion that makes clear that the sole judicial action that triggers a violation of the QPAM exemption’s anti-criminal rule is a criminal conviction.

According to a DOL statement, the department will hold a public hearing January 15 on whether to grant a permanent exemption, and under what conditions.

EBSA’s notice, which compiles the 10 response letters the DOL received from eight members of the general public and two members of the U.S. House of Representatives, is available in full here.