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Secretary of Labor Thomas E. Perez

EBSA (Formerly PWBA) Federal Register Notice

Proposed Exemptions; Deutsche Bank AG (Duetsche Bank) [12/30/2002]

[PDF Version]

Volume 67, Number 250, Page 79649-79655




[[Page 79649]]


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DEPARTMENT OF LABOR


Pension and Welfare Benefits Administration


[Application No. D-11055, et al.


 
Proposed Exemptions; Deutsche Bank AG (Duetsche Bank)


AGENCY: Pension and Welfare Benefits Administration, Labor.


ACTION: Notice of proposed exemptions.


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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 (the Act) and/or the Internal 
Revenue Code of 1986 (the Code).


Written Comments and Hearing Requests


    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. 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.


ADDRESSES: All written comments and requests for a hearing (at least 
three copies) should be sent to the Pension and Welfare Benefits 
Administration (PWBA), Office of Exemption Determinations, Room N-5649, 
U.S. Department of Labor, 200 Constitution Avenue, NW., 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 PWBA via e-mail or FAX. Any such 
comments or requests should be sent either by e-mail to: 
``moffittb@pwba.dol.gov'', or by FAX to (202) 219-0204 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 Pension and Welfare Benefits Administration, U.S. 
Department of Labor, Room N-1513, 200 Constitution Avenue, NW., 
Washington, DC 20210.


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).


SUPPLEMENTARY INFORMATION: 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 (55 FR 32836, 32847, August 10, 1990). 
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.
    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 Bank AG (Deutsche Bank)


    Located in Germany, with Affiliates in New York, New York and Other 
Locations


[Application Number D-11055]


Proposed Exemption


    The Department is considering granting an exemption under the 
authority of section 408(a) of the Act and section 4975(c)(2) of the 
Code, and in accordance with the procedures set forth in 29 CFR Part 
2570, Subpart B (55 FR 32836, 32847, August 10, 1990).


Section I. Covered Transactions


    If the proposed exemption is granted, effective December 11, 2001, 
the restrictions of section 406(a)(1)(A) through (D) and 406(b)(1) and 
(b)(2) of the Act, and the taxes imposed by section 4975(a) and (b) of 
Code, by reason of section 4975(c)(1)(A) through (E) of the Code, shall 
not apply to the following foreign exchange transactions between 
Deutsche Bank AG or a foreign affiliate thereof that is a bank or 
broker-dealer (collectively, DBAG), and an employee benefit plan with 
respect to which DBAG is a trustee, custodian, fiduciary or other party 
in interest, pursuant to a standing instruction, if the conditions set 
forth in section II below are met:
    (1) An income item conversion; or
    (2) A de minimis purchase or sale transaction.


Section II. Conditions


    (a) At the time the foreign exchange transaction is entered into, 
the terms of the transaction are not less favorable to the plan than 
the terms generally available in comparable arm's-length foreign 
exchange transactions between unrelated parties.
    (b) At the time the foreign exchange transaction is entered into, 
the terms of the transaction are not less favorable to the plan than 
the terms afforded by DBAG in comparable arm's-length foreign exchange 
transactions involving unrelated parties.
    (c) DBAG does not have any discretionary authority or control with 
respect to the investment of the plan assets involved in the 
transaction and does not render investment advice (within the meaning 
of 29 CFR 2510.3-21(c)) with respect to the investment of those assets.
    (d) DBAG maintains at all times written policies and procedures 
regarding the handling of foreign exchange transactions for plans with 
respect to which DBAG is a trustee, custodian, fiduciary or other party 
in interest or disqualified person which assure that the person acting 
for DBAG knows that he or she is dealing with a plan.
    (e) The covered transaction is performed under a written 
authorization executed in advance by a fiduciary of the plan whose 
assets are involved in the transaction, which plan fiduciary is 
independent of DBAG. The written authorization must specify:
    (1) The identities of the currencies in which covered transactions 
may be executed; and
    (2) That the authorization may be terminated by either party 
without penalty on no more than ten days notice.
    (f)(1) Income item conversions are executed within no more than one 
business day from the date of receipt of notice by DBAG that such items 
are good funds, and a foreign custodian which is an affiliate of DBAG, 
provides such notice to DBAG within ``one business day'' of its receipt 
of good funds;
    (2) De minimis purchase and sale transactions are executed within 
no more than one business day from the date that either DBAG receives 
notice


[[Page 79650]]


from a foreign custodian that the proceeds of a sale of foreign 
securities dominated in foreign currency are good funds, or the 
direction to acquire foreign currency was received by DBAG and a 
foreign custodian which is an affiliate of DBAG provides such notice to 
DBAG within one business day of its receipt of good funds from a sale.
    (g)(1) At least once each day, at the time(s) specified in its 
written policies and procedures, DBAG establishes either a rate of 
exchange or a range of rates to be used for income item conversions and 
de minimis purchase and sale transactions covered by this exemption.
    (2) Income item conversions are executed at the next scheduled time 
for conversions following receipt of notice by DBAG from the foreign 
custodian that such funds are good funds. If it is the policy of DBAG 
to aggregate small amounts of foreign currency until a specified 
minimum threshold amount is received, then the conversion may take 
place at a later time but in no event more than 24 hours after receipt 
of notice.
    (3) De minimis purchase and sale transactions are executed at the 
next scheduled time for such transactions following receipt of either 
notice that the sales proceeds denominated in foreign currency are good 
funds, or a direction to acquire foreign currency. If it is the policy 
of DBAG to aggregate small transactions until a specified threshold 
amount is received, then the execution may take place at a later time 
but in no event more than 24 hours after receipt of either notice that 
the sales proceeds have been received by the foreign custodian as good 
funds, or a direction to acquire foreign currency.
    For purposes of this paragraph (g), the range of exchange rates 
established by DBAG for a particular foreign currency cannot deviate by 
more than three percent [above or below] the interbank bid and asked 
rates as displayed on Reuters or another nationally recognized 
independent service in the foreign exchange market (provided that the 
independent service chosen will be consistently used in determining 
whether the deviation limitation has been met) for such currency at the 
time such range or rates is established by DBAG;
    (h) Prior to the execution of the authorization referred to in 
paragraph (e), DBAG provides the independent fiduciary with a copy of 
DBAG's written policies and procedures regarding the handling of 
foreign exchange transactions involving income item conversions and de 
minimis purchase and sale transactions. The policies and procedures 
must, at a minimum, contain the following information:
    (1) Disclosure of the time(s) each day that DBAG will establish the 
specific rate of exchange or the range of exchange rates for the 
covered transactions to be executed and the time(s) that such covered 
transactions will take place. DBAG shall include a description of the 
methodology that DBAG uses to determine the specific exchange rate or 
range of exchange rates;
    (2) Disclosure that income item conversions and de minimis purchase 
and sale transactions will be executed at the first scheduled 
transaction time after notice that good funds from an income item 
conversion or a sale have been received, or a direction to purchase 
foreign currency has been received. To the extent that DBAG aggregates 
small amounts of foreign currency until a specified minimum threshold 
amount is met, a description of this practice and disclosure of the 
threshold amount; and
    (3) A description of the process by which DBAG's foreign exchange 
policies and procedures for income item conversions and de minimis 
purchase and sale transactions may be amended and disclosed to plans.
    (i) DBAG furnishes to the independent fiduciary a written 
confirmation statement with respect to each covered transaction not 
more than five business days after execution of the transaction.
    (1) With respect to income item conversions, the confirmation shall 
disclose the following information:
    (A) Account name;
    (B) Date of notice that good funds were received;
    (C) Transaction date;
    (D) Exchange rate;
    (E) Settlement date;
    (F) Identity of foreign currency;
    (G) Amount of foreign currency sold;
    (H) Amount of U.S. dollars or other currency credited to the plan; 
and
    (2) With respect to de minimis purchase and sale transactions, the 
confirmation shall disclose the following information:
    (A) Account name;
    (B) Date of notice that sales proceeds denominated in foreign 
currency are received as good funds or direction to acquire foreign 
currency was received;
    (C) Transaction date;
    (D) Exchange rate;
    (E) Settlement date;
    (F) Currencies exchanged:
    i. Identity of the currency sold;
    ii. Amount sold;
    iii. Identity of the currency purchased; and
    iv. Amount purchased.
    (j) DBAG--
    (1) Agrees to submit to the jurisdiction of the United States;
    (2) Agrees to appoint an agent for service of process in the United 
States, which may be an affiliate (the Process Agent);
    (3) Consents to service of process on the Process Agent;
    (4) Agrees that it may be sued in the United States Courts in 
connection with the transactions described in this proposed exemption;
    (5) Agrees that any judgment may be collectable by an employee 
benefit plan in the United States from Deutsche Bank; and
    (6) Agrees to comply with, and be subject to, all relevant 
provisions of the Act.
    (k) DBAG maintains, within territories under the jurisdiction of 
the United States Government, for a period of six years from the date 
of the transaction, the records necessary to enable the persons 
described in paragraph (l) of this section to determine whether the 
applicable conditions of this exemption have been met, including a 
record of the specific exchange rate or range of exchange rates DBAG 
established each day for foreign exchange transactions effected under 
standing instructions for income item conversions and de minimis 
purchase and sale transactions. However, a prohibited transaction will 
not be considered to have occurred if, due to circumstances beyond 
DBAG's control, the records are lost or destroyed prior to the end of 
the six-year period, and no party in interest other than DBAG shall be 
subject to the civil penalty that may be assessed under section 502(i) 
of the Act, or the taxes imposed by section 4975(a) and (b) of the 
Code, if the records, are not maintained by DBAG, or are not made 
available for examination by DBAG, or its affiliate as required by 
paragraph (l) of this section.
    (l)(1) Except as provided in subparagraph (2) of this paragraph and 
notwithstanding any provisions of subsection (a)(2) and (b) of section 
504 of the Act, the records referred to in paragraph (k) of this 
section are available at their customary location for examination, upon 
reasonable notice, during normal business hours by:
    (A) Any duly authorized employee or representative of the 
Department of Labor or the Internal Revenue Service.
    (B) Any fiduciary of a plan who has authority to acquire or dispose 
of the assets of the plan involved in the foreign exchange transaction 
or any duly authorized employee or representative of such fiduciary.


[[Page 79651]]


    (C) Any contributing employer to the plan involved in the foreign 
exchange transaction or any duly authorized employee or representative 
of such employer.
    (2) None of the persons described in subparagraphs (B) and (C) 
shall be authorized to examine DBAG's trade secrets or commercial or 
financial information of DBAG, which is privileged or confidential.


Section III. Definitions and General Rules


    For purposes of this exemption,
    (a) A ``foreign exchange'' transaction means the exchange of the 
currency of one nation for the currency of another nation.
    (b) The term ``standing instruction'' means a written authorization 
from a plan fiduciary, who is independent of DBAG, to DBAG to effect 
the transactions specified therein pursuant to the instructions 
provided in such authorization.
    (c)(1) The term ``independent of DBAG'' means a plan fiduciary who 
is unrelated to, and independent of, DBAG. For purposes of this 
exemption, a plan fiduciary will be deemed to be unrelated to, and 
independent of, DBAG if such fiduciary represents that neither such 
fiduciary, nor any individual responsible for the decision to authorize 
or terminate authorization for transactions described in section I, is 
an officer, director, or highly compensated employee (within the 
meaning of section 4975(e)(2)(H) of the Code) of DBAG and represents 
that such fiduciary shall advise DBAG if those facts change.
    (2) Notwithstanding anything to the contrary in this section III 
(c), a fiduciary is not independent if:
    (i) such fiduciary directly or indirectly controls, is controlled 
by, or is under common control with DBAG;
    (ii) such fiduciary directly or indirectly receives any 
compensation or other consideration from DBAG for his own personal 
account in connection with any transaction described in this exemption;
    (iii) any officer, director, or highly compensated employee (within 
the meaning of section 4975(e)(2)(H) of the Code) of DBAG, responsible 
for the transactions described in section I, is an officer, director, 
or highly compensated employee (within the meaning of section 
4975(e)(2)(H) of the Code) of the plan sponsor or of the fiduciary 
responsible for the decision to authorize or terminate authorization 
for transactions described in section I. However, if such individual is 
a director of the plan sponsor or of the responsible fiduciary, and if 
he or she abstains from participation in (A) the choice of DBAG as a 
directed trustee or custodian and (B) the decision to authorize or 
terminate authorization for transactions described in section I, then 
section III(c)(2)(iii) shall not apply.
    (3) The term ``officer'' means a president, any vice president in 
charge of a principal business unit, division or function (such as 
sales, administration or finance), or any other officer who performs a 
policy-making function for the entity.
    (d) The term ``control'' means the power to exercise a controlling 
influence over the management of policies of a person other than an 
individual.
    (e) An ``income item conversion'' means: (1) The conversion into 
U.S. dollars of an amount which is the equivalent of no more than 
300,000 U.S. dollars of interest, dividends or other distributions or 
payments with respect to a security, tax reclaims, proceeds from 
dispositions of rights, fractional shares or other similar items 
denominated in the currency of another nation that are received by DBAG 
on behalf of the plan from the plan's foreign investment portfolio; or 
(2) the conversion into any currency as required and specified by the 
standing instruction of an amount which is the equivalent of no more 
than 300,000 U.S. dollars of interest, dividends, or other 
distributions or payments with respect to a security, tax reclaims, 
proceeds from dispositions of rights, fractional shares or other 
similar items denominated in the currency of another nation that are 
received by DBAG on behalf of the plan from the plan's foreign 
investment portfolio, provided that the converted funds are either 
transferred to an interest bearing account which provides a reasonable 
rate of interest within 24 hours of the conversion and held therein 
pending reinvestment by the plan or the bank reinvests such proceeds 
within 24 hours of the conversion at the direction of the plan.
    (f) A ``de minimis purchase or sale transaction'' means the 
purchase or sale of foreign currencies in an amount of no more than 
300,000 U.S. dollars or the equivalent thereof in connection with the 
purchase or sale of foreign securities by a plan.
    (g) For purposes of this exemption the term ``employee benefit 
plan'' refers to a pension plan described in 29 CFR Sec. 2510.3-2 and/
or a welfare benefit plan described in 29 CFR Sec. 2510.3-1.
    (h) For purposes of this exemption, the term ``good funds'' means 
funds immediately available in cash with no sovereign or other 
governmental impediments or restrictions to the exchange or transfer of 
such funds.
    (i) For purposes of this exemption, the term ``business day'' means 
a banking day as defined by federal or state banking regulations.
    (j) For purposes of this exemption, a ``foreign affiliate'' of 
Deutsche Bank means any non-U.S. entity that is directly or indirectly, 
through one or more intermediaries, controlling, controlled by, or 
under common control with Deutsche Bank.
    (k) For purposes of this exemption, the term ``bank'' means a 
foreign affiliate of Deutsche Bank: (1) That is a banking institution 
supervised and examined by the German banking authorities (currently, 
the Bundesanstalt fur Finanzdienstleistungsaufsicht (the BAFin), in 
cooperation with the Deutsche Bundesbank (the Bundesbank)), or is 
subject to regulation by similar governmental banking authorities 
located in the same country as such affiliate; and (2) whose activities 
are monitored and controlled pursuant to the statutory and regulatory 
standards of German law applicable to the foreign affiliates of 
Deutsche Bank engaged in banking activities.
    (l) For purposes of this exemption, the term ``broker-dealer'' 
means a foreign affiliate of Deutsche Bank: (1) Engaged in the business 
of effecting transactions in securities for the account of others, or 
regularly engaged in the business of buying and selling securities for 
its own account through a broker or otherwise; and (2) supervised by 
the German authorities responsible for regulating the activities 
described in (1) of this paragraph, or subject to regulation by similar 
governmental authorities located in the country in which such affiliate 
is located.
    Effective Date: December 11, 2001.


Summary of Facts and Representations


    1. Deutsche Bank is a German banking corporation and commercial 
bank that provides a wide range of services to various types of 
entities worldwide. Deutsche Bank is one of the largest financial 
institutions in the world in terms of assets held, managing over $585 
billion in assets either through collective trusts, separately managed 
accounts, or mutual funds.
    Bankers Trust Company (Bankers Trust) is a commercial bank that 
provides a wide range of services to various types of entities 
worldwide.\1\


[[Page 79652]]


Bankers Trust is a wholly-owned subsidiary of Bankers Trust 
Corporation, which, in turn, is a wholly-owned indirect subsidiary of 
Deutsche Bank.
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    \1\ Within the United States, the New York branch of Deutsche 
Bank is regulated and supervised by the New York State Banking 
Department. In addition, certain activities of Deutsche Bank's New 
York branch are regulated and supervised by the Federal Reserve Bank 
of New York.
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    2. The applicant seeks an exemption to permit employee benefit 
plans to engage in certain foreign exchange transactions with Deutsche 
Bank and its non-U.S. banking affiliates. Specifically, the applicant 
is requesting an exemption for plans to engage, pursuant to an 
independent fiduciary's written authorization and the instructions 
contained therein (i.e., a standing instruction), in foreign exchange 
transactions involving income item conversions and de minimis purchase 
or sale transactions (hereinafter, either, a foreign exchange 
transaction) with Deutsche Bank or its foreign affiliates (DBAG).\2\ 
The applicant notes that no relief is being sought with respect to 
transactions where DBAG has discretionary authority or control over the 
investment of the assets involved, or provides investment advice with 
respect to such assets.
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    \2\ The Department notes that the Acts general standards of 
fiduciary conduct would apply to the standing instruction 
arrangements permitted by this proposed exemption, if granted. In 
this regard, section 404 of the Act requires, among other things, a 
fiduciary to discharge his duties respecting a plan solely in the 
interest of the plans participants and beneficiaries and in a 
prudent manner. Accordingly, an independent plan fiduciary must act 
prudently with respect to: (1) The decision to enter into an 
arrangement described herein; and (2) the negotiation of the terms 
of such an arrangement, including, among other things, the specific 
terms by which DBAG will engage in foreign exchange transactions on 
behalf of the plan. The Department further emphasizes that it 
expects plan fiduciaries, prior to entering into foreign exchange 
transactions pursuant to standing instructions, to fully understand 
the benefits and risks associated with such transactions and 
instructions, following disclosure by DBAG of all relevant 
information. In addition, the Department notes that such plan 
fiduciaries must periodically monitor, and have the ability to so 
monitor, the services provided by DBAG.
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    The applicant describes an income item conversion as the conversion 
into any currency (including U.S. dollars) of interest, dividends or 
other distributions or payments with respect to a security, tax 
reclaims, proceeds from dispositions of rights, fractional shares or 
other similar items denominated in the currency of another nation. The 
applicant states that for purposes of this proposed exemption, the 
amount of such conversion will not exceed the equivalent of 300,000 
U.S. dollars. The applicant describes a de minimis purchase or sale 
transaction as the purchase or sale of foreign currencies in an amount 
of no more than the equivalent of 300,000 U.S. dollars in connection 
with the purchase or sale of foreign securities by a plan.
    3. According to the applicant, income item conversions and purchase 
or sale transactions of less than $300,000 are integral components to 
any plan's foreign investment activities. In this regard, the applicant 
states that upon a plan's receipt of a distribution in a foreign 
currency, an income item conversion may be necessary to convert such 
distribution to U.S. dollars or another foreign currency. Conversions 
to U.S. dollars may be necessary, the applicant states, for assets to 
be repatriated in a form usable for distribution, domestic 
reinvestment, or other purposes. Conversions to another foreign 
currency, meanwhile, may be necessary to enable plans to engage in 
additional foreign investments. Similarly, conversations may be 
necessary in connection with the proceeds from the purchase and sale of 
foreign securities by plans.
    4. The applicant states that the proposed exemption is necessary 
given the amounts of assets involved, the continuously fluctuating 
nature of foreign exchange rates, and the currency restrictions in 
place in certain markets. According to the applicant, when DBAG acts as 
a custodian with respect to a plan, a foreign exchange transaction 
involving a relatively small amount of assets is often more efficiently 
transacted between the plan and DBAG than on the open market. 
Additionally, the applicant states, the proposed exemption, in allowing 
plans to engage in the covered transactions pursuant to a prior written 
authorization executed by an independent plan fiduciary, avoids certain 
delays that may be costly to such plans. Finally, the applicant states, 
trading with a DBAG custodian or affiliated sub-custodian may be 
necessary in certain markets that restrict the sale or purchase of the 
local currency.
    5. The applicant states that Prohibited Transaction Class Exemption 
(PTE) 98-54 (63 FR 63503 (November 13, 1998)) grants relief for foreign 
exchange transactions that are similar in nature to those contained in 
this proposed exemption. The applicant notes, however, that in 
providing relief for an income item conversion and a de minimis 
purchase and sale transaction between a ``bank'' and an employee 
benefit plan, the class exemption requires that such ``bank'' (or any 
domestic affiliate thereof), be ``supervised by the United States or a 
State thereof.'' \3\ The applicant states that, when operating outside 
the United States, Deutsche Bank is not supervised by a State or by the 
United States.\4\
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    \3\ Part IV(c), 63 FR at 63510.
    \4\ Although Bankers Trust qualifies as a ``bank'' under PTE 98-
54, the principal foreign exchange desk for Bankers Trust is the 
London Branch of Deutsche Bank.
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    6. The applicant represents that plans will be protected to the 
extent that DBAG is allowed to participate in the types of foreign 
exchange transactions described herein. In this regard, the applicant 
states that Deutsche Bank is subject to a comprehensive system of 
regulatory oversight and a mandatory insurance program. With respect to 
the regulatory and supervisory requirements applicable to Deutsche 
Bank, the applicant states that Deutsche Bank, its branches, and its 
subsidiary banks worldwide are subject to regulatory requirements and 
protections that are, qualitatively, at least equal to those imposed on 
U.S.-domiciled banks.\5\ With respect to Deutsche Bank itself, 
globally, the bank is regulated and supervised by the BAFin, in 
cooperation with the Bundesbank. The BAFin is a federal institution 
with ultimate responsibility to the German Ministry of Finance. The 
Bundesbank, in turn, is the central bank of the Federal Republic of 
Germany and a part of the European Central Banks.
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    \5\ In support of this, the applicant notes that the U.S. 
Department of Treasury has accorded national treatment to German 
bank branches, and the German Ministry of finance has granted relief 
to branches of U.S. banks in Germany, in particular with respect to 
``dotation'' or endowment capital requirements and capital adequacy 
standards.
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    The applicant states that the BAFin requires that Deutsche Bank 
have procedures for monitoring and controlling its worldwide activities 
through the implementation of various statutory and regulatory 
standards. Among those standards are requirements for adequate internal 
controls, oversight, administration, and financial resources. The BAFin 
reviews compliance with these operational and internal control 
standards through an annual audit performed by the year-end auditor and 
through special audits ordered by the BAFin.
    In addition to the regulatory and supervisory arrangements 
described above, the applicant states that Deutsche Bank and its 
foreign branches are covered under a mandatory deposit insurance 
program.\6\ According to the applicant, this insurance program is 
maintained by an institution separate from Deutsche Bank and is 
supervised by the BAFin. The program insures


[[Page 79653]]


deposits denominated in the currency of a European Economic Area member 
state up to the lesser of 90% of the deposit amount or 20,000 euros.
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    \6\ The applicant states that, in addition, Deutsche Bank and 
its foreign branches are covered by a voluntary deposit protection 
program called the Deposit Protection Fund that safeguards 
liabilities in excess of the thresholds guaranteed by the European 
Union Program discussed above.
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    7. The applicant represents that the conditions contained in this 
proposed exemption are protective of plans engaging in a conversion or 
transaction with DBAG. In this regard, the applicant states that any 
time a plan enters into an income item conversion and/or a de minimis 
purchase and sale transaction, the terms of the conversion and/or 
transaction will be no less favorable to the plan than: (a) The terms 
generally available in a comparable arm's-length transaction between 
unrelated parties; and (b) the terms afforded by DBAG in a comparable 
arm's-length transaction involving unrelated parties. In addition, the 
applicant states that DBAG will not have any discretionary authority or 
control, or render investment advice, with respect to the investment of 
the plan assets involved in the transaction. Further, DBAG will 
maintain certain written policies and procedures to assure that the 
person acting for DBAG knows that he or she is dealing with a plan.
    With respect to the execution of an income item conversion, the 
applicant represents that each such conversion will be executed within 
``one business day'' from the date of receipt of notice by DBAG that 
such items are good funds.\7\ Such notice, in turn, will be provided by 
a foreign custodian that is an affiliate of DBAG within ``one business 
day'' of the actual receipt of good funds. With respect to de minimis 
purchase and sale transactions, the applicant represents that each such 
transaction will be executed within ``one business day'' from the date 
that either Deutsche Bank receives notice from a foreign custodian that 
the proceeds of a sale of foreign securities dominated in foreign 
currency are good funds, or the direction to acquire foreign currency 
was received by Deutsche Bank and a foreign custodian that is an 
affiliate of Deutsche Bank provides such notice within one business day 
of its receipt of good funds from a sale. Moreover, the applicant 
states, at least once each day, DBAG will establish either a rate of 
exchange or a range of rates to be used for the transactions covered by 
this exemption.\8\
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    \7\ According to the applicant, if it is the policy of DBAG to 
aggregate small amounts of foreign currency until a specified 
minimum threshold amount is received, then a conversion may in no 
event take place more than 24 hours after receipt of notice.
    \8\ The applicant states that such range of exchange rates 
established by DBAG for a particular foreign currency will not 
deviate by more than three percent [above or below] the interbank 
bid and asked rates as displayed on Reuters or another nationally 
recognized independent service in the foreign exchange market, for 
such currency at the time such range or rates is established by 
DBAG.
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    The applicant represents that plans will be further protected in 
that prior to the execution discussed above, DBAG will provide the 
independent fiduciary with a copy of DBAG's written policies and 
procedures regarding the handling of foreign exchange transactions 
involving income item conversions and de minimis purchase and sale 
transactions. Among other things, the policies and procedures must: 
disclose the methodology that DBAG uses to determine the specific 
exchange rate or range of exchange rates; and describe the process by 
which DBAG's foreign exchange policies and procedures for income item 
conversions and de minimis purchase and sale transactions may be 
amended and disclosed to plans. In addition, not more than five 
business days after execution of the transaction, DBAG must furnish an 
independent with a written confirmation statement with respect to each 
covered transaction. According to the applicant, with respect to income 
item conversions, such confirmation will contain, among other things, 
the exchange rate; the settlement date; and the identity and amount of 
foreign currency sold. With respect to de minimis purchase and sale 
transactions, such confirmation will contain, among other things, the 
transaction date; the exchange rates; the settlement date; the 
currencies exchanged; and the amount of foreign currency sold.
    Finally, DBAG: (a) agrees to submit to the jurisdiction of the 
courts of the United States; (b) agrees to appoint a Process Agent for 
service of process in the United States, which may be an affiliate; (c) 
consents to service of process on the Process Agent; (d) agrees that it 
may be sued in the courts of the United States in connection with 
transactions described in this proposed exemption; (e) agrees that any 
judgment may be collectable by an employee benefit plan in the United 
States from Deutsche Bank; and (f) agrees to comply with, and be 
subject to, all relevant provisions of the Act.
    8. In summary, the applicant represents that the proposed 
transactions satisfy the statutory criteria for an exemption under 
section 408(a) of the Act since, among other things:
    (a) At the time the foreign exchange transaction is entered into, 
the terms of the transaction will be no less favorable to the plan than 
the terms generally available in comparable arm's-length foreign 
exchange transactions between unrelated parties;
    (b) At the time the foreign exchange transaction is entered into, 
the terms of the transaction will be no less favorable to the plan than 
the terms afforded by DBAG in comparable arm's-length foreign exchange 
transactions involving unrelated parties;
    (c) DBAG will not have any discretionary authority or control with 
respect to the investment of the plan assets involved in the 
transaction and will not render investment advice with respect to the 
investment of those assets;
    (d) DBAG will maintain at all times written policies and procedures 
regarding the handling of foreign exchange transactions for plans with 
respect to which the bank or broker-dealer is a trustee, custodian, 
fiduciary or other party in interest or disqualified person which 
assure that the person acting for DBAG knows that he or she is dealing 
with a plan;
    (e) A covered transaction will be performed under a written 
authorization executed in advance by a fiduciary of the plan whose 
assets are involved in the transaction, which plan fiduciary is 
independent of DBAG;
    (f) Income item conversions will be executed within no more than 
one business day from the date of receipt of notice by DBAG that such 
items are good funds, and a foreign custodian which is an affiliate of 
DBAG, will provide such notice to DBAG within ``one business day'' of 
its receipt of good funds;
    (g) De minimis purchase and sale transactions will be executed 
within no more than one business day from the date that either DBAG 
receives notice from a foreign custodian that the proceeds of a sale of 
foreign securities dominated in foreign currency are good funds, or the 
direction to acquire foreign currency was received by DBAG and a 
foreign custodian which is an affiliate of DBAG provides such notice to 
DBAG within one business day of its receipt of good funds from a sale;
    (h) At least once each day, at the time(s) specified in its written 
policies and procedures, DBAG will establish either a rate of exchange 
or a range of rates to be used for income item conversions and de 
minimis purchase and sale transactions covered by this exemption;
    (i) With limited exceptions, income item conversions will be 
executed at the next scheduled time for conversions following receipt 
of notice by DBAG from the foreign custodian that such funds are good 
funds, and de minimis purchase and sale transactions will be executed 
at the next scheduled time for


[[Page 79654]]


such transactions following receipt of either notice that the sales 
proceeds denominated in foreign currency are good funds, or a direction 
to acquire foreign currency;
    (j) The range of exchange rates established by DBAG for a 
particular foreign currency cannot deviate by more than three percent 
[above or below] the interbank bid and asked rates as displayed on 
Reuters or another nationally recognized independent service in the 
foreign exchange market (provided that the independent service chosen 
will be consistently used in determining whether the deviation 
limitation has been met) for such currency at the time such range or 
rates is established by DBAG;
    (k) Prior to the execution of the authorization referred to above, 
DBAG will provide the independent fiduciary with a copy of DBAG's 
written policies and procedures regarding the handling of foreign 
exchange transactions involving income item conversions and de minimis 
purchase and sale transactions;
    (l) DBAG will furnishes to the independent fiduciary a written 
confirmation statement with respect to each covered transaction not 
more than five business days after execution of the transaction; and
    (m) DBAG--
    (1) Agrees to submit to the jurisdiction of the United States;
    (2) Agrees to appoint a Process Agent, which may be an affiliate;
    (3) Consents to service of process on the Process Agent;
    (4) Agrees that it may be sued in the United States Courts in 
connection with transactions described in this proposed exemption;
    (5) Agrees that any judgment may be collectable by an employee 
benefit plan in the United States from Deutsche Bank; and
    (6) Agrees to comply with, and be subject to, all relevant 
provisions of the Act.
    For Further Information Contact: Christopher Motta, Office of 
Exemption Determinations, Pension and Welfare Benefits Administration, 
U.S. Department of Labor, telephone (202) 693-8544. (This is not a 
toll-free number.)


Reagent Chemical & Research, Inc. Employees' Profit Sharing Plan and 
Trust (the Plan), Located in Middlesex, New Jersey


[Application No. D-11095]


Proposed Exemption


    The Department is considering granting an exemption under the 
authority of section 408(a) of the Act and section 4975(c)(2) of the 
Code and in accordance with the procedures set forth in 29 CFR part 
2570, subpart B (55 FR 32836, 32847, August 10, 1990). If the exemption 
is granted, the restrictions of sections 406(a), 406(b)(1) and (b)(2) 
of the Act and the sanctions resulting from the application of section 
4975 of the Code, by reason of section 4975(c)(1)(A) through (E) of the 
Code, shall not apply to the proposed sale of a 73.4815% tenancy-in-
common interest (the Property Interest) by the Plan to Brian Skeuse, a 
vice president and shareholder of Reagent Chemical & Research, Inc. 
(RCR), and his spouse, Jan Skeuse (hereinafter sometimes referred to 
collectively as the ``Skeuses''), parties in interest with respect to 
the Plan, provided that the following conditions are satisfied:
    (a) the sale is a one-time cash transaction;
    (b) the Plan receives the greater of either: (i) $180,029.68; or 
(ii) the current fair market value for the Property Interest 
established at the time of the sale by an independent qualified 
appraiser; and
    (c) the Plan pays no commissions or other expenses associated with 
the sale.


Summary of Facts and Representations


    (1) The Plan was adopted on December 12, 1962. RCR is the sponsor 
of the Plan. RCR is a subchapter ``S'' corporation organized under the 
laws of State of Delaware. RCR is in the business of the manufacture, 
distribution and sale of specialty chemicals. The Plan's current 
trustees are John T. Skeuse, brother of Brian Skeuse, and Stephen T. 
Finney, brother-in-law of Brian Skeuse.
    The Plan is a defined contribution plan with approximately 320 
participants. As of April 15, 2002, the Plan had approximately 
$31,000,000.00 in total assets. The value of the Property Interest to 
be sold in the proposed transaction is 0.5806% of the total fair market 
value of the Plan's assets. At the time of the acquisition of the 
Property Interest by the Plan, such interest constituted 3.188% of the 
Plan's overall portfolio of assets.
    2. On November 3, 1980, the Plan purchased approximately 34.58 
acres of land (the Land) from Joe and Wenona Russo, unrelated third 
parties, for $225,000, which was $6,506.65 per acre. The sale consisted 
of a 34.58 acre parcel of which the Property Interest is a part. The 
purchase price for the Land was paid in full in cash. The Plan sold 
portions of the Land to the Skeuses on January 23, 1987 and April 3, 
2001, pursuant to the terms and conditions of Prohibited Transaction 
Exemption (PTE) 87-17, 52 FR 2630 and PTE 01-12, 66 FR 17740 \9\. The 
Property Interest consists of approximately 19.52 acres and is 
described as Block 41, Lot 38, Raritan Township, Hunterdon County, New 
Jersey.
---------------------------------------------------------------------------


    \9\ The Department is providing no opinion herein as to whether 
the conditions of PTE 87-17 or PTE 01-12 were met.
---------------------------------------------------------------------------


    The Property Interest is adjacent to the Skeuses' personal family 
residence. It is represented that the decision to purchase the Land as 
an investment for the Plan was made by Robert Dallas and Thomas Skeuse, 
Sr., who were the Plan's trustees at the time of the transaction \10\.
---------------------------------------------------------------------------


    \10\ The Department is not providing any opinion in this 
proposed exemption as to whether the acquisition and holding of the 
Land, and the acquisition of the Property Interest, by the Plan 
violates any of the provisions of Part 4 of Title I of the Act.
---------------------------------------------------------------------------


    3. The Skeuses propose to pay a purchase price for the Property 
Interest in the amount of $180,029.68, which would be paid in full in 
cash at a closing to be held subsequent to the granting of the proposed 
exemption. This amount represents 73.4815% of the appraised fair market 
value of the Land, which has been determined to be $245,000.
    The remaining 26.5185% tenancy-in-common interest in the Property 
Interest is owned by The Dallas Group of America, Inc. Employees' 
Profit Sharing Plan and Trust (the ``Dallas Plan''). The Dallas Plan 
acquired its interest in the Property Interest from the Plan in 
connection with a Plan of Reorganization of the Employer, which 
resulted in the creation and spin-off of The Dallas Group of America, 
Inc., a New Jersey corporation. Pursuant to the said Plan of 
Reorganization and related Spin-off of Assets of The Reagent Chemical & 
Research, Inc. Employees' Profit Sharing Plan & Trust to the Dallas 
Plan, the Plan transferred 26.5185% of its assets to the Dallas Plan, 
including the Property Interest.\11\ If this proposed exemption is 
granted, the Dallas Plan will also sell its interest in the Property 
Interest to the Skeuses based upon the same appraised fair market value 
and upon the same terms. The applicant represents that the Skeuses are 
not parties in interest with respect to the Dallas Plan and, therefore, 
is not requesting relief for that transaction.
---------------------------------------------------------------------------


    \11\ The applicant represents that said plan spin-off was 
effectuated by the transfer of a pro-rata portion of each of the 
assets and each of the liabilities of the Plan to the Dallas Plan.
---------------------------------------------------------------------------


    4. The applicant states that the Property Interest has not been an 
income-producing asset and has been held for possible appreciation. The 
Plan has paid for taxes, insurance and maintenance on the Property 
Interest


[[Page 79655]]


since the acquisition (the Holding Costs). Specifically, the Plan has 
paid the following Holding Costs since its acquisition of the Property 
Interest in November, 1980: (i) Real estate taxes, $2,480.00; (ii) 
Insurance, $4,300.00; (iii) Appraisal and other professional fees, 
$3,150.00. The Plan's budgeted holding costs for holding the Property 
Interest for the current Plan year, consisting of, primarily, taxes, 
insurance and appraisal fees, is $1,240.00. The applicant states that 
the Holding Costs for the Property Interest have been approximately 
$11,170. Therefore, the total cost for the Property Interest (i.e., the 
acquisition price of $127,009, plus the Holding Costs of approximately 
$11,170) is approximately $138,179 as of April 2002.
    5. The Property Interest was appraised on May 19, 2002, as having a 
fair market value of $180,029.68 (the Appraisal). The Appraisal was 
prepared by George A. Copeland, Jr., MAI (Mr. Copeland), who is an 
independent, qualified real estate appraiser in the State of New 
Jersey. Mr. Copeland is employed by Copeland Appraisal Associates, Inc.
    Mr. Copeland states that consideration was given in the Appraisal 
to three approaches to value, i.e., the cost approach, sales comparison 
approach, and income approach. However, Mr. Copeland relied on the 
sales comparison approach to determine the fair market value of the 
Property Interest. Mr. Copeland rendered an opinion as to whether and 
the extent to which the Property Interest has a greater value to the 
Skeuses (as compared to its value in the hands of an unrelated third 
party buyer) by reason of its proximity to the Skeuses' residential 
property. Mr. Copeland represented that he did not believe this to be 
the case because he believes that the Property Interest would not merit 
a premium above its fair market value in any sale to an adjacent 
property owner. In addition, Mr. Copeland represents that an undivided 
interest within the fee simple title of the Land is neither diminished 
nor enhanced in proportionate value under an assumed unified sale of 
the full fee simple title. Hence, in this circumstance, Mr. Copeland 
represents that the value of an undivided interest of the Land is 
directly consistent with the appropriate designated percentage of 
ownership.
    6. The applicant now proposes that the Skeuses purchase the 
Property Interest from the Plan in a one-time cash transaction. The 
applicant represents that the proposed transaction would be in the best 
interest and protective of the Plan. The Plan will pay no commissions 
or other expenses associated with the sale. The Skeuses will pay the 
Plan the greater of either: (a) $180,029.68; or (b) the current fair 
market value of the Property Interest, as established by a qualified, 
independent appraiser at the time of the transaction.
    The sale of the Property Interest will enable the Plan to sell an 
illiquid non-income producing asset and reinvest the sale proceeds in 
assets that may yield higher returns. The Plan has been attempting to 
liquidate its real estate investments and believes that the proposed 
transaction will occur during what appears to be a market peak, and the 
Plan should, accordingly, be able to maximize its gain from this real 
estate investment.
    7. In summary, the applicant represents that the transaction will 
satisfy the statutory criteria of section 408(a) of the Act and section 
4975(c)(2) of the Code because: (a) The proposed sale will be a one-
time cash transaction; (b) the Plan will receive the greater of either: 
(i) $180,029.68; or (ii) the current fair market value for the Property 
Interest, as established at the time of the sale by an independent 
qualified appraiser; (c) the Plan will pay no fees, commissions or 
other expenses associated with the sale; and (d) the sale will enable 
the Plan to divest itself of a non-income producing asset and acquire 
investments which may yield higher returns.
    Notice To Interested Persons: Notice of the proposed exemption 
shall be given to all interested persons in the manner agreed upon by 
the applicant and Department within 15 days of the date of publication 
in the Federal Register. Comments and requests for a hearing are due 
forty-five (45) days after publication of the notice in the Federal 
Register.
    For Further Information Contact: Khalif I. Ford of the Department 
at (202) 693-8540. (This is not a toll-free number.)


General Information


    The attention of interested persons is directed to the following:
    (1) The fact that a transaction is the subject of an exemption 
under section 408(a) of the Act and/or section 4975(c)(2) of the Code 
does not relieve a fiduciary or other party in interest or disqualified 
person from certain other provisions of the Act and/or the Code, 
including any prohibited transaction provisions to which the exemption 
does not apply and the general fiduciary responsibility provisions of 
section 404 of the Act, which, among other things, require a fiduciary 
to discharge his duties respecting the plan solely in the interest of 
the participants and beneficiaries of the plan and in a prudent fashion 
in accordance with section 404(a)(1)(b) of the Act; nor does it affect 
the requirement of section 401(a) of the Code that the plan must 
operate for the exclusive benefit of the employees of the employer 
maintaining the plan and their beneficiaries;
    (2) Before an exemption may be granted under section 408(a) of the 
Act and/or section 4975(c)(2) of the Code, the Department must find 
that the exemption is administratively feasible, in the interests of 
the plan and of its participants and beneficiaries, and protective of 
the rights of participants and beneficiaries of the plan;
    (3) The proposed exemptions, if granted, will be supplemental to, 
and not in derogation of, any other provisions of the Act and/or the 
Code, including statutory or administrative exemptions and transitional 
rules. Furthermore, the fact that a transaction is subject to an 
administrative or statutory exemption is not dispositive of whether the 
transaction is in fact a prohibited transaction; and
    (4) The proposed exemptions, if granted, will be subject to the 
express condition that the material facts and representations contained 
in each application are true and complete, and that each application 
accurately describes all material terms of the transaction which is the 
subject of the exemption.


    Signed at Washington, DC, this 24th day of December, 2002.
Ivan Strasfeld,
Director of Exemption Determinations, Pension and Welfare Benefits 
Administration, U.S. Department of Labor
[FR Doc. 02-32894 Filed 12-27-02; 8:45 am]

BILLING CODE 4510-29-P