A financial institution that resolves federal criminal charges needs a waiver from the U.S. Securities and Exchange Commission (SEC) before it can participate in the securities business without restriction. But if that institution has an asset management business, it must obtain an equally important waiver from the Department of Labor (DOL), as the big banks are learning the hard way.
Asset managers, typically large financial institutions, are exempt from a wide range of prohibitions under the Employee Retirement Income Security Act (ERISA). The exemptions allow them to conduct sophisticated transactions for clients in the pension-fund market. DOL regulations, however, disqualify felons from a range of business activities, including the authority to perform as asset managers. The Labor Department can grant waivers to allow an asset manager to conduct business despite the criminal record that results from resolving a criminal investigation by way of a plea agreement. The SEC can grant similar waivers to allow asset managers to issue new securities after a guilty plea.
In May 2014, Credit Suisse A.G. pleaded guilty to a criminal charge of conspiring to help U.S. taxpayers file false income tax returns. Following conviction, the bank requested a waiver from the Labor Department to continue to provide full asset management services to covered pension funds and Individual Retirement Accounts (IRAs) as a qualified professional asset manager. At a notice and comment hearing, the DOL made clear that it would not grant waivers to asset managers that do not “maintain a high level of integrity.” It said the Labor Department would focus on “whether the proposed exemption is in the interest of plans, participants, and beneficiaries, and protective of their interests” essentially “whether [the exemption is] good or bad for plans and participants.” A decision is forthcoming. According to one news source, in May, Credit Suisse quietly withdrew its request for a waiver from the SEC, based on information that SEC staff would deny the waiver.
A similar request from BNP Paribas offers another window into the DOL’s analysis. Following BNP’s 2014 conviction for violating U.S. sanctions against Sudan, Cuba, and Iran, it requested a Labor Department waiver. In granting the waiver, the DOL emphasized the degree to which the qualified pension manager’s operations can be isolated from bad actors.
Upcoming hearings on five recent big bank waiver requests will provide even more insight into the Labor Department’s thinking. The requests follow federal criminal pleas from Citicorp, JPMorgan Chase & Co., Barclays PLC, The Royal Bank of Scotland PLC, and UBS AG. On May 20, the Justice Department charged the banks with manipulating the price of U.S. dollars and Euros in the foreign currency exchange spot market and with conspiring to fix prices and rig bids. The SEC granted waivers to all five banks. As to the DOL, in addition to paying fines and penalties—in amounts described as historic—the banks will need waivers to maintain their status as qualified asset managers. For banks confronting criminal charges, the resulting Labor Department commentary, in an atmosphere of political pressure to scrutinize these requests, will offer valuable guidance.