Notice of Proposed Amendment; Prohibited Transaction Exemption
(PTE) 99-29 Involving Bankers Trust Company, Deutsche Bank Trust
Company Americas (DBTCA), and Deutsche Bank, AG
[02/03/2005]
Volume 70, Number 22, Page 5699-5701
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DEPARTMENT OF LABOR
Employee Benefits Security Administration
Notice of Proposed Amendment; Prohibited Transaction Exemption
(PTE) 99-29 Involving Bankers Trust Company, Deutsche Bank Trust
Company Americas (DBTCA), and Deutsche Bank, AG
[Application No. D-11246]
SUMMARY: This document contains a notice of pendency before the
Department of Labor (the Department) of a proposed individual
exemption, which, if granted, would amend PTE 99-29 (64 FR 40623, July
27, 1999), an exemption granted to Bankers Trust Company. PTE 99-29
permits DBTCA (formerly known as Bankers Trust Company) to continue to
function as a qualified professional asset manager (QPAM) under PTE 84-
14 (49 FR 9494, March 13, 1994). If granted, the proposed exemption
would affect participants and beneficiaries and fiduciaries of employee
benefit plans to which DBTCA served as custodian.
EFFECTIVE DATE: If adopted, the proposed amendment will be effective as
of January 31, 2003.
DATES: Written comments and requests for a public hearing should be
received by the Department on or before March 21, 2005.
ADDRESSES: All written comments and requests for a public hearing
should be sent to the Office of Exemption Determinations, Employee
Benefits Security Administration, Room N-5649, U.S. Department of
Labor, 200 Constitution Ave., NW., Washington, DC 20210, (Attention D-
11246), by fax to (202) 219-0204, or by e-mail to
moffitt.betty@dol.gov. The application pertaining to the proposed
exemption and the comments received will be available for public
inspection in EBSA's Public Documents Room, U.S. Department of Labor,
Room N-1513, 200 Constitution Ave., NW., Washington, DC.
FOR FURTHER INFORMATION CONTACT: Allison Padams Lavigne, Office of
Exemption Determinations, Employee Benefits Security Administration,
U.S. Department of Labor, Washington, DC 20210 at (202) 693-8540. This
is not a toll-free number.
SUPPLEMENTARY INFORMATION: Notice is hereby given of the pendency
before the Department of a proposed exemption that would amend PTE 99-
29. Section I of PTE 99-29 conditionally permits Banks Trust Company
\1\ to continue to function as a QPAM pursuant to PTE 84-14,
notwithstanding its failure to satisfy section I(g) of PTE 84-14.
Section I(g) specifies that:
\1\ On June 4, 1999, Deutsche Bank, AG acquired Bankers Trust
Corporation. DBTA is indirectly wholly owned by Deutsche Bank, AG.
Thus, any reference to Bankers Trust Company should be read to mean
DBTCA.
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Neither the QPAM nor any affiliate thereof (as defined in
section V(d)), nor any owner, direct or indirect, 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: Any
felony involving abuse or misuse of such person's employee benefit
plan position or employment, or position or employment with a labor
organization; any felony arising out of the conduct of the business
of a broker, dealer, investment adviser, bank, insurance company or
fiduciary; income tax evasion; any felony involving the larceny,
theft, robbery, extortion, forgery, counterfeiting, fraudulent
concealment, embezzlement, fraudulent conversion, or
misappropriation of funds or securities; conspiracy or attempt to
commit any such crimes or a crime in which any of the foregoing
crimes is an element; or any other crime described in section 411 of
the Employee Income Retirement Security Act of 1974 (ERISA or the
Act). For purposes of this section (g), a person shall be deemed to
have been ``convicted'' from the date of the judgment of the trial
court, regardless of whether that judgment remains under appeal.
Section I of PTE 99-29 was effective for the period beginning on
the date of sentencing with respect to the charges to which Bankers
Trust Company pled guilty on March 11, 1999 and ending on July 27,
2004, as a result of the conviction of Bankers Trust Company for
felonies described in the March 11, 1999 felony information entered in
the U.S. District Court for the Southern District of New York (the
Information), provided that the conditions of the PTE 99-29 were
met.\2\
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\2\ For additional information regarding the Information,
interested persons should refer to the notice of proposed exemption
at 64 FR 30360, June 7, 1999.
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The conditions of section I of PTE 99-29 include the following:
(a) The exemption is not applicable if Bankers Trust Company
becomes affiliated with any person or entity convicted of any of the
crimes described in section I(g) of PTE 84-14;
(b) The exemption is not applicable if Bankers Trust Company is
convicted of any crimes described in section I(g) of PTE 84-14, other
than those felonies discussed in the Information;
(c) The custody operations that were part of Bankers Trust Company
at the time of the March 11, 1999 information, and which have
subsequently been reorganized as part of Global Institutional Services
(GIS), are subject to an annual examination of its abandoned property
and escheatment policies, procedures and practices by an independent
public accounting firm. The examination required by this condition
shall determine whether the written procedures adopted by Bankers Trust
Company are properly designed to assure compliance with the
requirements of ERISA. The annual examination shall specifically
require a determination by the auditor as to whether the Bank has
developed and adopted internal policies and procedures that achieve
appropriate control objectives and shall include a test of a
representative sample of transactions, fifty percent of which must
involve ERISA covered plans, to determine operational compliance with
such policies and procedures. The auditor shall issue a written report
describing the steps performed by the auditor during the course of its
examination. The report shall include the auditor's specific findings
and recommendations. This requirement shall continue to be applicable
to the custody operations that were part of Bankers Trust Company as of
March 11, 1999, notwithstanding any subsequent reorganization of the
custody operation function during the term of the exemption.
(d) With respect to the independent audit report described in
section I(c) above: (1) Bankers Trust Company shall provide notice to
the Department of any instances of the Bank's noncompliance with the
written policies and procedures reviewed by the auditor within 10
business days after such noncompliance is determined by the auditor
notwithstanding the fact that the examination may not have been
completed as of that date. Upon request, the auditor shall provide the
Department with all of the relevant
[[Page 5700]]
work papers reflecting the instances of noncompliance. The work papers
should identify whether and to what extent the assets of ERISA plans
were involved in the instances of noncompliance, and (2) any
information relating to the Bank's noncompliance with the written
policies and procedures that is required by Federal and/or State
banking authorities to be reported to the State and/or Federal banking
agencies shall also be reported by Bankers Trust Company to the
Department within the same time frames that such information is
otherwise required to be reported to those agencies.
(e) The annual examination described in section I(c) above will be
provided to the Department not later than 90 days following the 12
month period to which it relates, and will be unconditionally available
for examination by any duly authorized employee or representative of
the Department, Internal Revenue Service, Securities and Exchange
Commission or Department of Justice or other relevant regulators and
any fiduciary of a plan for which Bankers Trust Company performs
services.
The proposed amendment has been requested in an application filed
on behalf of DBTCA. DBTCA is a New York banking corporation providing a
wide range of banking, fiduciary, record keeping custodial, brokerage
and investment services to corporations, institutions, governments,
employee benefit plans, governmental retirement plans, and private
investors worldwide. Deutsche Bank, AG indirectly wholly owns DBTCA.
In its application for an amendment to PTE 99-29, the applicant
represents that on January 23, 2003, Deutsche Bank sold its global
custody business to State Street. Deutsche Bank's sale of its custody
operations to State Street included the books and records underlying
the business, as well as its employees. Except as discussed below, the
applicant represents that as of January 15,2004, DBTCA no longer is a
custodian for ERISA covered plans.
The applicant represents that the Private Bank of Deutsche Bank
will continue to serve as custodian for certain small ERISA covered
plans. State Street will serve as subcustodian and perform all
recordkeeping on behalf of these plans. The Private Bank is a division
of DBTCA. Prior to the sale of DBTCA's custody business to State
Street, the assets of the Private Bank's ERISA clients were custodied
by DBTCA. That custody was transferred to State Street in 2003. In this
regard, the applicant states that DBTCA has no ability to influence the
operations and procedures of State Street's custodial operations. Like
DBTCA, the Private Bank no longer has any direct custody functions. To
the extent that it holds the title of custodian for any ERISA account,
it does not have control (except as an investment manager, without
possession or record ownership) over any of that plan's assets. All
Private Bank plan assets are subcustodied at State Street. No
securities, cash or other assets of ERISA plans are custodied at DBTCA,
in the Private Bank, or otherwise.
In addition, the applicant represents that Deutsche Bank did not
sell its foreign branches. The Deutsche Bank AG branches provide
worldwide subcustody for other global custodians and are not subject to
the five-year limited exemption granted to Bankers Trust Company in
Section I of PTE 99-29. The applicant states that these branches were
not involved in the felony (and indeed were unrelated to Bankers Trust
Company when the felony occurred), and their relationship with other
global custodians is not governed by, subject to, or otherwise related
to, DBTCA and never has been. These Deutsche Bank branches are
independent of, and have never been supervised or controlled by, DBTCA.
Deutsche Bank seeks an amendment of PTE 99-29 that would modify
section I(c) of PTE 99-29. The applicant has requested this condition
be modified to remove the annual audit requirement after the date on
which DBTCA ceased to have custody of ERISA plan assets.\3\ The
applicant also seeks a five-year extension of the relief provided by
the exemption.\4\ The Department has proposed to modify the exemption
such that DBTC shall be subject to the audit requirements through
January 15, 2004. The Department has also proposed that the effective
date of the exemption be extended to July 27, 2009.
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\3\ DB states that it will maintain copies of these of audits
for the time period required under ERISA.
\4\ The Department noted in footnote 4 of PTE 99-29, ``Prior to
the expiration of this exemption, Bankers Trust Company may apply
for an extension of the exemption.'' (64 FR 40625, July 27, 1999)
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Lastly, the applicant seeks clarification on whether the relief
provided by the exemption will continue to be available now that
records are maintained by State Street, and if so, whether or not State
Street must maintain these records for fifteen years. As noted in the
summary of facts and representations of the notice of proposed
exemption for PTE 99-29, (64 FR 30360, 30364, June 7, 1999), the
applicant represented that check ledgers, cancelled checks and class
action records are to be maintained for 15 years. Further, all
escheatment records are to be kept indefinitely.
In its application for amendment of PTE 99-29, Deutsche Bank states
that it continues to maintain escheatment records indefinitely, but it
no longer has access to check ledgers, cancelled checks and class
actions records because they are now owned and maintained by State
Street. The applicant states that it would be burdensome for State
Street to maintain the records for the fifteen-year period because that
time period is inconsistent with State Street's own seven-year record
retention policies. The applicant requests that the record-keeping
requirements be made consistent with the six-year time period found in
section 107 of ERISA. The Department concurs with the applicant that as
a result of Deutsche Bank's sale to State Street, the fifteen-year
record retention policy described in PTE 99-29 is no longer feasible.
The Department believes that the six-year period described in section
107 of ERISA would provide a sufficient time period to enable
individuals to obtain the information contained in these records. In
this regard, Deutsche Bank should take reasonable steps to ensure that
such records are maintained by State Street for the time specified in
ERISA section 107, and are available to those individuals seeking such
information.\5\
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\5\ It is the Department's understanding that copies of the
audits that were conducted pursuant to PTE 99-29 will be maintained
by DBTCA for the time period specified by section 107 of ERISA.
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Notice to Interested Persons
With respect to notification of interested persons, the applicant
will distribute notice of the proposed amendment by first class mail to
an independent plan fiduciary for each ERISA covered plan for which
DBTCA and its subsidiaries provide or provided fiduciary services,
including trustee services and/or the provision of investment advice,
at the time DBTCA sold its custodial business to State Street, and each
owner of an IRA account to which DBTCA and its subsidiaries provide or
provided investment advisory services at the time DBTCA sold its
custody business to State Street. The applicant will distribute the
notice to all participants in its own ERISA pension plans, either by
return receipt of electronic mail or by first class mail. All
notification will be mailed or electronically mailed within three
business days after publication of this proposed amendment in the
Federal Register. The applicant will also use its best efforts to
notify an
[[Page 5701]]
independent fiduciary for each ERISA pension plan client of DBTCA.
General Information
The attention of interested persons is directed to the following:
(1) The fact that a transaction is the subject of an exemption
granted under section 408(a) of the Act and/or 4975(c)(2) of the
Internal Revenue Code of 1986 (the Code) does not relieve a fiduciary
or other party in interest with respect to a plan to which the
exemption is applicable from certain other provisions of the Act and/or
the Code. These provisions include any prohibited transaction
provisions to which the exemption does not apply and the general
fiduciary provisions of section 404 of the Act which, among other
things, requires a fiduciary to discharge his or her duties respecting
the plan solely in the interests of the participants and beneficiaries
of the plan and in a prudent fashion in accordance with section
404(a)(1)(B) of the Act; nor does it affect the requirement of section
401(a) of the Code that the plan must operate for the exclusive benefit
of the employees of the employer maintaining the plan and their
beneficiaries.
(2) The proposed exemption, if granted, will be supplemental to,
and not in derogation of, any other provisions of the Act and/or Code,
including statutory or administrative exemptions and transitional
rules. Furthermore, the fact that a transaction is subject to an
administrative or statutory exemption is not dispositive of whether the
transaction is in fact a prohibited transaction;
(3) The availability of this exemption, if granted, is subject to
the express condition that the material facts and representations
contained in the application are true and complete and accurately
describe all material terms of the transaction which is the subject of
this exemption. In the case of continuing transactions, if any of the
material facts or representations described in the application change,
the exemption will cease to apply as of the date of such change. In the
event of any such change, an application for a new exemption must be
made to the Department; and
(4) Before an exemption may be granted under section 408(a) of
ERISA, the Department must find that the exemption is administratively
feasible, in the interests of the plan and of its beneficiaries and
protective of the rights or participants and beneficiaries of the plan.
Proposed Exemption
Based on the facts set forth in the application, and 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, August 10, 1990), the Department proposes
to modify PTE 99-29 as set forth below:
Section I is amended to read as follows: ``Bankers Trust Company
(now known as DBTCA) shall not be precluded from functioning as a
``qualified professional asset manager'' pursuant to Prohibited
Transaction Exemption 84-14 (49 FR 9494, March 13, 1994) (PTE 84-14)
for the period beginning on the date of sentencing with respect to the
charges to which Bankers Trust Company pled guilty on March 11, 1999
and ending July 27, 2009, solely because of a failure to satisfy
section I(g) of PTE 84-14 as a result of the conviction of Bankers
Trust Company for felonies described in the March 11, 1999 felony
information (the Information) entered in the U.S. District Court for
the Southern District of New York, provided that:''
Section I(c) is amended to read as follows: ``The custody
operations that were part of Bankers Trust Company at the time of the
March 11, 1999 information, and which have subsequently been
reorganized as part of Global Institutional Services (GIS), are subject
to an annual examination of its abandoned property and escheatment
policies, procedures and practices by an independent public accounting
firm. The examination required by this condition shall determine
whether the written procedures adopted by Bankers Trust Company are
properly designed to assure compliance with the requirements of ERISA.
The annual examination shall specifically require a determination by
the auditor as to whether the Bank has developed and adopted internal
policies and procedures that achieve appropriate control objectives and
shall include a test of a representative sample of transactions, fifty
percent of which must involve ERISA covered plans, to determine
operational compliance with such policies and procedures. The auditor
shall issue a written report describing the steps performed by the
auditor during the course of its examination. The report shall include
the auditor's specific findings and recommendations. This requirement
shall continue to be applicable to the custody operations that were
part of Bankers Trust Company as of March 11, 1999, notwithstanding any
subsequent reorganization of the custody operation function during the
term of the exemption. Such audit requirements shall be applicable for
any year or part thereof in which DBTCA held ERISA covered plan assets
in custody.''
Section III(a) is amended to read as follows: ``For purposes of
this exemption, the term ``Bankers Trust Company'' includes Bankers
Trust Company, and any entity that was affiliated with Bankers Trust
Company prior to the date of the acquisition of Bankers Trust
Corporation by Deutsche Bank AG, other than BT Alex. Brown Incorporated
and its subsidiaries. This term also refers to Deutsche Bank Trust
Company Americas (DBTCA).''
For a more complete statement of facts and representations
supporting the Department's decision to grant PTE 99-29, refer to the
proposed exemption (64 FR 30360, June 7, 1999) and the grant notice (64
FR 40623, July 27, 1999).
Signed at Washington, DC, this 31st day of January 2005.
Ivan L. Strasfeld,
Director, Office of Exemption Determinations, Employee Benefits
Security Administration, U.S. Department of Labor.
[FR Doc. 05-2077 Filed 2-2-05; 8:45 am]
BILLING CODE 4510-29-P
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