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Employee Benefits Security Administration

EBSA Federal Register Notice

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]

[PDF Version]

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]

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