TRANSCRIPT OF PROCEEDINGS

IN THE MATTER OF: ) 

) 

PROPOSED INDIVIDUAL EXEMPTION ) 

INVOLVING CREDIT SUISSE AG ) 

REVISED AND CORRECTED TRANSCRIPT

Pages: 1 through 217

Place: Washington, D.C.

Date: January 15, 2015

HERITAGE REPORTING CORPORATION

Official Reporters

1220 L Street, N.W., Suite 600 

Washington, D.C. 20005-4018 

(202) 628-4888

contracts@hrccourtreporters.com
1

UNITED STATES DEPARTMENT OF LABOR

EMPLOYEE BENEFITS SECURITY ADMINISTRATION

IN THE MATTER OF: ) 

) 

PROPOSED INDIVIDUAL ) 

EXEMPTION INVOLVING CREDIT ) 

SUISSE AG ) 

Room C5320

U.S. Department of Labor

200 Constitution Avenue, N.W.

Washington, D.C.

Thursday, 

January 15, 2015

The parties met, pursuant to the notice, at

10:04 a.m.

PANEL:

TIMOTHY HAUSER, Deputy Assistant Secretary for

Programs at EBSA

PHYLLIS BORZI, Assistant Secretary of Labor, EBSA

LYSSA HALL, Director, Director of Exemption

Determinations, EBSA

CHRISTOPHER MOTTA, Chief, Division of Individual

Exemptions, EBSA

MEGAN HANSEN, Office of the Solicitor, Department

of Labor

SPEAKERS:

STEPHEN SAXON, Groom Law Group

ELLEN GOODWIN, Groom Law Group

BILL JOHNSON, Credit Suisse Asset Management

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SPEAKERS: (Continued)

ROGER MACHLIS, Credit Suisse Asset Management

PAUL MORJANOFF, Financial Recovery & Consulting

Services

THOMAS SPALDING, Retired

JOHN POPP, Credit Suisse AG

BARTLETT NAYLOR, Public Citizen

HEATHER LOWE, Global Financial Integrity

JAMES S. HENRY, Tax Justice Network

ANDREAS FRANK, (No affiliation)

RALPH NADER, Founder, Public Citizen

EMIDIO MORIZIO, Credit Suisse Asset Management

NEIL RADEY, Credit Suisse Asset Management

ALAN LEBOWITZ, Evercore Trust Co.

WILLIAM RYAN, Evercore Trust Co.

GEORGE E. ARNSTEIN, (No affiliation)

JAMES SMALHOUT, (No affiliation)

DAVID GARZA, Henry Street Settlement

DENISE DURHAM WILLIAMS, Student Sponsor Partners

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P R O C E E D I N G S 

(10:04 a.m.)

MR. HAUSER: Good morning. Can everybody

hear me? Okay, I'll do my best. Unfortunately, I 

have a cold, so it's going to be a bit of a strain.

I'm Timothy Hauser. I'm the Deputy

Assistant Secretary for Program Operations at EBSA,

the Employee Benefits Security Administration, of the

U.S. Department of Labor. This is a public hearing on

a proposed prohibited transaction exemption for

certain affiliates of Credit Suisse. Before we hear

from witnesses, I'm going to take a few minutes to lay

out the legal context for the hearing and describe the

process.

The Employee Retirement Income Security Act

of 1974, ERISA, prohibits a wide range of transactions

known as prohibited transactions. These are

transactions between employee benefit plans and

parties in interest, parties with a relationship with

the plans. As a practical matter, plans could not

function effectively without some relief from the

expansive reach of these prohibitions. Large

employers and funds necessarily engage in a wide

variety of garden variety sorts of economic

transactions with parties in interest, and for

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example, all the different service providers to a plan

are parties in interest, but nevertheless plans need

to engage in, you know, all manner of transactions

with those service providers.

Accordingly, the Congress gave the

Department of Labor authority to issue exemptions from

the broad reach of the prohibited transaction rules

when the Department determines that the exemptions are

in the interest of and protective of plan participants

and beneficiaries as well as administratively

feasible.

One of these exemptions is prohibited

transaction exemption 84-14, the QPAM exemption. A 

QPAM is a qualified professional asset manager. By

definition, QPAMs are large regulated institutions

such as banks, savings and loan associations,

insurance companies, or federally registered

investment advisors who meet certain standards of size

and independence. The QPAM exemption permits these

independent plan fiduciaries to engage in a variety of

beneficial arm's-length transactions with parties in

interest that would otherwise be prohibited. The QPAM

exemption does not, however, permit QPAMs to engage in

self-dealing. They cannot act in their own interest

or in the interest of their affiliates, nor can they

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engage in transactions with parties that are in a 

position to affect their independent judgment, such as

persons that have an ownership interest in the QPAM.

In the past, a number of the Credit Suisse

entities have relied on the QPAM exemption for relief

from some of the prohibited transaction rules, but

Credit Suisse's recent criminal conviction violates

Section I(g) of the QPAM exemption. That section

prohibits QPAMs and related entities from relying on

the exemption after specified convictions and it

reflects the Department's view that a QPAM and those

who may be in a position to influence a QPAM should

maintain a high level of integrity as the bar remains

in effect for 10 years following the date of

conviction.

Credit Suisse AG pled guilty to conspiring

with U.S. citizens to commit tax fraud in violation of

the Internal Revenue Code on May 19, 2014. That same

date Credit Suisse applied for an individual exemption

from the Department, requesting that these Credit

Suisse-related affiliates be permitted to continue to

rely on the QPAM class exemption notwithstanding the

impending conviction.

On September 3, 2014, the Department

published a notice of a proposed exemption in the

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Federal Register for the QPAMs to continue to rely on

the exemption. The proposed exemption contains a 

variety of new conditions applicable to Credit Suisse

AG and the affiliated QPAMs. These conditions were

designed to ensure the integrity and proper fiduciary

conduct of the affiliated entities. According to the

applicant, none of the affiliated entities were

involved in any way with Credit Suisse AG's criminal

misconduct.

In response to our publication the

Department received several comments requesting a 

public hearing. After consideration of those comments

and requests, on November 18, the Department granted a 

temporary exemption and we also established this

hearing date. The temporary exemption preserves the

status quo and ensures that plans and IRAs don't incur

needless costs or injury as a result of Credit

Suisse's loss of QPAM status, and the issue today is

do we essentially extend that temporary exemption and

finalize a proposed new exemption.

Under the new exemption, just to outline

some of the conditions, the relief is conditioned on

representations that none of the affiliated QPAMs were

involved in or profited from the criminal misconduct;

that none of the assets involved belong to plans or

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IRAs; employees and agents responsible for plan

transactions must not have been involved in the

criminal conduct.

Conditions include the development of

extensive policies and procedures designed to ensure

that the affiliates fully comply with their fiduciary

duties; stringent reporting requirements; mandatory

training of Credit Suisse's personnel regarding their

legal and ethical responsibilities; and independent

audits of the affiliates' compliance with their

fiduciary obligations, their prohibited transaction

rules and the terms of the exemption.

In addition, the exemption requires notice

to affected plans and IRAs of the facts that led to

the criminal conviction and its consequences, and with

limited exceptions, the exemption prohibits the

affiliated QPAMs from imposing fees, penalties, or

charges on any plans or IRAs that wish to terminate or

withdraw from the relationship with the QPAMs.

A full statement of the conditions is set

out in the proposed exemption and, of course, the

other set of conditions is they would also have to

continue to comply with all the other conditions of

the original QPAM exemption.

So, as our Federal Register notice stated,

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the hearing today should focus on whether the proposed

exemption is in the interest of plans, participants,

and beneficiaries, and protective of their interests.

We did not turn down any request to speak today, but

we would appreciate it if you would focus your

comments, you know, on that fundamental issue of

whether this is essentially good or bad for plans and

participants.

Speakers will be called in the order listed

on the agenda. I'd appreciate it if the speakers

could limit remarks to the 10-minute period allocated.

If we have questions, the question and answer won't

count against the time limit, and I caution everybody

against reading any conclusions into our questions.

They're questions, not decisions.

At the conclusion of the presentation we'll

take other comments if time permits. If you filed a 

written statement with us, you don't need to read the

whole statement. I know I'm a bad example of that,

but speakers are encouraged to summarize the

statements in their oral testimony, and before you

begin your testimony I'd appreciate it if you could

identify yourself, your affiliation, and the

organization you represent for the reporter.

We'll keep the record open until January 26.

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So, if anybody would like to supplement the record,

you're welcome to do that, and the official record

will be open for public inspection and copies will be

available in our public disclosure room.

Let me now just let the other members of the

panel introduce themselves, and we'll start with our

first witnesses. Starting with my boss, Phyllis

Borzi.

MS. BORZI: I'm Phyllis Borzi. I'm the

Assistant Secretary of Labor for the Employee Benefits

Security Administration.

MS. HALL: I'm Lyssa Hall. I'm the Director

of Exemptions Determination, EBSA.

MR. MOTTA: Chris Motta, Chief of the

Division of Individual Exemptions, EBSA.

MS. HANSEN: Megan Hansen, Office of

Solicitor, Department of Labor.

MR. HAUSER: So our first speakers are Steve

Saxon and Ellen Goodwin.

MR. SAXON: Good morning. My name is

Stephen Saxon. I'm the Chairman of the Groom Law

Group in Washington, D.C. Here with me today is my

colleague, Ellen Goodwin. Thank you for giving us the

opportunity to comment on the Credit Suisse exemption

proposal.

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MALE VOICE: Excuse me. Would you speak

into the mic?

MR. SAXON: Initially we'd like to provide

some historical background regarding the exemption,

particularly Section I(g), the anti-criminal rule,

that we may be uniquely suited to provide.

Shortly after ERISA was enacted it became

clear -- I'm one of the few folks here probably who

was around at that time -- it became clear that the

breadth of the party-in-interest prohibitions under

Section 406(a) caused insurmountable compliance

difficulties for asset managers both with respect to

single customer and pooled asset accounts.

For that reason and the number of

transactions involving plan assets that were

prohibited by Section 406(a), we began a process where

we would prepare party-in-interest check lists, do

prohibited transaction compliance reviews, and

sometimes even get an investment opportunity where we

weren't sure if we had prohibited transactions or not.

Because of those difficulties, in October of

1978, we filed a class exemption application action,

Ellen has got some copies up there if you guys want to

see it, D-1204, which would provide relief for service

provider transactions engaged in on behalf of a plan

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by a bank, insurance company or registered investment

advisor. There was no 406(b) relief requested. We

believe this became the forerunner to the QPAM

exemption. The DOL rejected that proposal, telling us

that it was too broad.

What we did at that time is we went up to

the Hill and we began speaking to folks there. We

drafted legislation that we presented to the

President's Commission on Pension Policy that provided

exemptive relief under 406(a) for transactions

directed by a qualified professional asset manager,

and there were certain regulatory soundness provisions

and financial network provisions that we included in

that. There was an arm's-length condition, but there

was no anti-criminal rule similar to Section 411.

Later on, in 1981, Senator Nickles

introduced legislation called S. 1541 that would have

made pretty dramatic changes to the prohibited

transaction rules at least as they applied under

406(a). One of the things by way of example that it

did, it would have created an exception from the

treatment of plan assets for assets maintained in

conjunction with a bank collective investment trust or

an insurance company with a separate account.

I think, now I was there listening, I wasn't

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too intimately involved, I was just a junior associate

at the time, but at some Senate subcommittee labor

hearings that occurred in early 1982, Secretary of

Labor Raymond Donovan announced that they didn't

support S. 1541, but the Department did support moving

forward with the proposal, QPAM exemption proposal,

and that proposal was -- that proposal came to

fruition in December of 1982.

Our review of early drafts of the proposal

show that there was no inclusion of a 411 -- well,

they included -- there wasn't inclusion of a 411 anticriminal rule like we have today, but there was a 

reference to Section 411.

An interesting sidebar is that there was no

anti-criminal rule under the pooled separate accounts

exemption or in the bank collective investment fund

exemption, both which were in effect at that time, and

I want to talk a little bit more about that later.

If today we ended up with a Section 411

anti-criminal rule, we wouldn't be sitting here

because that rule limits the anti-criminal application

to the fiduciary that's engaged in the transaction,

not the affiliates of the fiduciary. So it begs the

question how did we get from Section 411 to Section

I(g).

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When the QPAM exemption was proposed in

December of 1982, there was a very broad anti-criminal

rule contained in Section I(g). It was broader than

the rule that we have today both in terms of the

number of crimes covered and in terms of the breadth

of the affiliate definition. We made a number of

comments. We objected to the breadth of the rule. We

objected to the breadth of the affiliation definition.

The Department took some of our comments. They didn't

take all of our comments, and we ended up with -- a 

zillion other folks also commented on that, and we

ended up where we ended up today.

One of the things I wanted to discuss, and

it's really just to point out some facts, is that when

we do prohibited transaction compliance protocols for

financial institutions we look at the QPAM exemption,

we look at 408(b)(17). We include, as applicable, the

bank collective investment trust exemption and the

pooled separate account exemption.

Neither the bank collective investment trust

exemption nor the pooled separate account exemption,

which in my professional opinion is just as important

as the QPAM exemption because there are so many ERISA

assets that are maintained in conjunction with those

exemptions, they don't include a Section I(g) type

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anti-criminal rule. Only the QPAM exemption includes

that.

Now I've been asking myself a question,

well, what is the relevance of that, and, look, the

Department of Labor has full discretion. They can add

any conditions that they feel are appropriate in the

granting of an exemption, but it was kind of

instructive to me that the Department felt that it was

appropriate to move forward with the granting of very

important exemptions that did not include any

expansive, you know, Section 411 anti-criminal rule in

the case of bank collective investment trusts and

pooled separate accounts, but they did feel that, you

know, this was necessary in conjunction with the QPAM

exemption.

So what that kind of says to me is that,

well, obviously you need to comply with the anticriminal rule under I(g) in order to get the

availability of the QPAM exemption. It has not been

critical to the granting of many other important

exemptions. Moreover, you know, the bank collective

investment trust exemption and the pooled separate

account exemption were both modified after '84, around

1990, 1991. The Department did not expand those

exemptions to include a I(g) type condition in those

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proposals.

Moreover, you know, there have probably been

25 or 30 amendments to Section 411 since the enactment

of ERISA, probably six or seven times where the

Department has really focused on the prohibited

transaction rules and Congress has not expanded 411 to

include the affiliates, not that that's necessarily

instructive to me. It's just kind of a worthy fact.

So one of the things that we've been trying

to figure out is why did the Department expand 411 to

the breadth of Section I(g). To the best of our

review and recollection, the answer to that question

is in the preamble to the proposed QPAM exemption, and

therein the Department stated that the purpose of

Section I(g) and the expanded range of affiliates was

to ensure that the QPAM and those who may be in a 

position to influence its policies maintain a high

degree of integrity.

A logical extension of this is that the

range of affiliates covered by the anti-criminal rule

ought to be limited to those affiliates who are in a 

position to influence QPAM decisionmaking.

Looking at the conditions to the Credit

Suisse proposal, we believe that the November 18

proposal would satisfy the purpose of the antiHeritage Reporting Corporation

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criminal rule as laid out by the Department in 1982.

The November 18 proposal would ensure that the

misconduct engaged by Credit Suisse AG would not

affect the policies, procedures, or ERISA asset

management customers of Credit Suisse Affiliated

QPAMs.

I'm not going to recite all of the different

conditions that are in my written testimony. And by

the way we brought 20 copies of the written testimony.

Erin has got some of them. I hope you guys have them,

and if you folks want a copy, just email. You can

email my partner here, Ellen Goodwin, at

egoodwin@groom.com, and we'll send you a copy of our

testimony if you want to read it.

But I thought it was worth emphasizing a 

couple things, and we've gone through our own

negotiations with the Department on, you know, getting

these types of exemptions. The exemption requires

that the Affiliated QPAMs develop policies that ensure

that the asset management decisions of the Affiliated

QPAMs are conducted independently of the parent,

Credit Suisse AG, and the exemption does not apply to

Credit Suisse AG itself, and that reminded me in our

negotiations with the Department on these types of

exemptions it's always been important to the

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Department that they looked at whether the misconduct,

that is, the centerpiece, the reason why they're

applying for the exemption, was engaged in by the QPAM

or by some affiliate, and it was always easier, if you

will, in my estimation to move the exemption through

where the conduct was engaged in by the affiliate and

not the QPAM. That seemed to be important and I think

that made sense.

The conditions of the proposed exemption,

they're formidable, especially when you compare those

conditions against the conditions that the Department

has used in the previous 19 or so exemptions that they

granted in this space.

We think that the conditions when combined

with the seven conditions under the QPAM exemption

which would remain applicable more than provide

sufficient assurance that the misconduct of Credit

Suisse AG will have no impact on the policies and

procedures of the Affiliated QPAMs in their management

of ERISA assets. Therefore, we believe the rationale

behind Section I(g) should be met in this case and

that the exemption should be viewed as protective of

the interests of ERISA plan participants and

beneficiaries.

Do you have anything to add to that?

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MS. GOODWIN: Sure. My name is Ellen

Goodwin. I work with Mr. Saxon at the Groom Law

Group. I just want to add a couple of -- I just want

to respond to a couple of specific concerns that have

been raised by the commenters to this exemption in the

public record.

One of the things that the witnesses have

expressed concern about is that the DOL would be

granting a "waiver" from the application of ERISA to

Credit Suisse in this case. We would like to

emphasize that this proposed exemption is far from a 

waiver of the application of ERISA. It's an

administrative exemption from the restrictions of

Section 406(a) of ERISA. That leaves the rest of

Title I of ERISA, the rest of ERISA's fiduciary

provisions, fully applicable to the QPAMs.

This is a very rigorous set of conditions

that the Credit Suisse Affiliated QPAMs were a part

of. In terms of alternatives, it's one of the most,

if not the most, demanding exemptions that DOL has

proposed in the QPAM anti-criminal area.

Secondly, I just wanted to mention the

witnesses have also raised concerns that DOL would not

be actively engaged in the oversight of this

exemption, and on this point we note that the DOL has

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issued hundreds, if not thousands, of administrative

exemptions from DOL's prohibited transaction rules and

we've worked with DOL on many of them, and DOL

exemptions are by their very nature intended to be

self-administered. The law requires them to

administer both. Section 408 of ERISA requires each

exemption to be administrable. So they are intended

to be self-administered.

This exemption, which is unusual for

exemptions issued by the DOL, specifically requires

the engagement of an independent auditor that will

provide a very active ongoing oversight role, and in

fact the auditor is required to audit the affiliated

QPAM's compliance with the exemption, among many other

things, and note instances of noncompliance in its

report which would then be provided to the DOL, so

that gives DOL a very meaningful ongoing oversight

tool and role in this case.

MR. SAXON: I'll make one final point. The

conditions under which the Department grants exemptive

relief are listed in 408(a) of ERISA, the exemption

that's administratively feasible. Ellen was

addressing that when she talked about the waiver

provision. The exemption is in the interest of

participants and beneficiaries. The exemption is

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protective of the rights of participants and

beneficiaries of the plan.

It goes without saying that a lot of the

witnesses, and we're not going to talk -- we know what

a lot of the witnesses are going to say today. We

have read their testimony as well. A lot of what

they're going to say is quite compelling, but in our

dealings with the Department over many, many years the

Department has not ordinarily taken political issues

into account, public policy agendas into account in

determining whether to grant or deny an exemption.

And adding one thing to what Ellen has said,

if you look at this exemption, it is obvious that

there has been a lot of hard work, a lot of

negotiations that went into the 14 separate conditions

that the Department is requiring Credit Suisse to go

through. I think it would be a mistake for the

Department to entertain the types of public policy,

political issues that heretofore you haven't engaged

in.

I see nobody has been able to hear me for

the last 20 minutes.

(Laughter.)

MR. SAXON: Yeah, that's pretty good. I'll

start at the beginning.

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(Laughter.)

MR. SAXON: And so I think that it would be

a mistake to begin to do that at this stage,

notwithstanding the fact that a lot of what will be

said today is quite compelling. Thank you.

MR. HAUSER: All right. Thank you very

much.

MR. SAXON: Thanks.

MS. GOODWIN: Thank you.

MR. HAUSER: Bill Johnson.

MR. HESSE: Could we take a moment to

address the lights, re-situate a few things?

MR. HAUSER: Okay.

(Pause.)

MR. HAUSER: Okay, I think -- excuse me. I 

think we have our technical issues resolved now. Now

my list shows as the next speaker Bill Johnson, but we

seem to have two Bill Johnsons. Maybe you can just

introduce yourself. I'd appreciate it.

MR. JOHNSON: I'm Bill Johnson.

(Laughter.)

MS. BORZI: Isn't there a TV show like this?

MR. JOHNSON: The other Bill Johnson is

Roger Machlis.

I'm managing director and global deputy at

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Credit Suisse Asset Management. Roger is the head of

the Credit Suisse Asset Management legal and

compliance group. I've worked in the asset management

and financial service industry for over 20 years in a 

number of different senior positions.

First of all, we apologize for the actions

that lead to this hearing. Credit Suisse has been

very proactive in addressing the issues that it's

faced. Our board of directors and executive

management take the issues of compliance with all laws

and regulations very seriously. We're absolutely

committed to a culture of respect for the laws that

apply to our bank and its clients.

We want to assure you again that our asset

management employees were not involved in the conduct

of our affiliate that resulted in the conviction. The

activities and decisions of Credit Suisse QPAMs take

place in the U.S. independent from Credit Suisse AG

and its Swiss operations. Our asset management

business complies with all the laws to which it is

subjected. Our asset management business has a long

established culture of compliance, ethical integrity,

and attention to both the letter and the spirit of the

law. We operate a fiduciary business and put the

interests of our clients first and foremost.

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We appreciate the opportunity to testify in

support of our application for an individual

exemption. We would like to thank the Department for

its hard work on the exemption. We believe the

exemption proposed by the Department is in the best

interest of and protects ERISA plans and participants.

We hope the Department will finalize the exemption as

quickly as possible. This will remove uncertainty and

provide closure to ERISA plans on this topic.

We believe a denial of the Credit Suisse

request for a QPAM exemption would significantly hurt

our plan clients. Our clients' counterparties know

the QPAM exemption and are comfortable with it.

Without a QPAM exemption certain transactions may be

impossible. Alternatives might involve higher fees

and transaction costs. If clients felt obligated to

change managers, they'd be harmed by incurring costs

and potentially adverse selection with the remaining

pool of managers. Our clients have spent significant

time and resources performing due diligence and

negotiating contracts with Credit Suisse Asset

Management. If ERISA plans have to change managers,

they'll be forced to relocate their capital to their

second choice.

If our clients are forced to terminate their

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asset management arrangement with Credit Suisse, they

would incur significant liquidation costs for their

portfolio. They would need to spend substantial time

issuing requests for proposals to find alternative

managers. They'd need to interview and assess the

respondents. They'd need to negotiate and document

these new investment relationships. And, finally,

they would need to reinvest those assets once the new

managers are hired.

Our estimation of liquidation costs during

the exemption process was intentionally conservative.

Spreads to reinvest our credit strategies can exceed a 

half of a percent because of the scarcity of

particular issues and tranches. These costs would

harm plans by reducing net returns. In addition, our

clients would not be invested in their desired

strategies during the transition period. They would

lose the benefit of being fully invested. And some

strategies, such as credit, there are no easy

substitutes, such as ETFs or futures. Additional

costs and burdens may include required communications

with participants, revision of plan disclosures,

websites, blackout periods, and potential confusion

among plan participants.

We have spoken with many of our clients

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since Credit Suisse AG pled. They are diligent,

cautious, and judicious in selecting their asset

managers. They exercise due care as they carry out

their responsibility. Our clients and their advisors

understand that Credit Suisse Asset Management

employees were not involved in the conduct of our

affiliate that resulted in the conviction.

We would like to emphasize that not a single

institutional ERISA client has terminated its

relationship with Credit Suisse Asset Management since

the plea agreement was entered. We think this makes

clear that our clients want to continue with us. It

would not be in the plan's interest to force them to

make a change because the QPAM exemption was not

granted.

Further, we'd like to emphasize that neither

a single plan or IRA client wrote letters requesting

that the Department deny the exemption or hold a 

hearing.

We know we need to earn our clients' trust

every day. We serve at their discretion. We seek to

do the best job managing their assets, to uphold the

highest ethical standards, and to be consummate

professionals in how we do our job. I'm proud of our

investment professionals. I hold them and myself to

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the highest standard.

I now reintroduce the other Bill Johnson,

Roger Machlis, again managing director, head of our

asset management legal and compliance team, and

Roger's been practicing law for over 28 years.

MR. MACHLIS: Thank you, Bill.

I manage a team of over 20 professionals in

the United States. The team provides comprehensive

legal compliance coverage to our asset management

businesses and helps to ensure that they conduct their

activities in full compliance with relevant laws and

regulations.

As fiduciaries, our asset management

business is committed to acting in the best interests

of our clients. I also want to assure you that our

asset management employees were not involved in the

conduct of our affiliate that resulted in the

conviction, and Credit Suisse has done extensive due

diligence to support that.

Credit Suisse asset managers use QPAM in

their dealings and agreements with counterparties to

implement the investment strategies for their ERISA

clients. The QPAM exemption is designed to improve

the administration of the prohibited transaction rules

by providing training and execution efficiencies to

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retirement plan clients. It has worked well for 30

years, allowing counterparties to understand and

assess their risk when trading with plans. It has

become a proxy for sophisticated professional

investment management, even if not technically

required for every transaction with a client not

covered by ERISA.

It allows ERISA-covered plans access to the

financial markets on an equal footing with other

investors since the exemption is well understood by

our counterparties and transactions are priced to

reflect this comfort. In addition, many non-ERISA

clients use the QPAM status to evaluate the

qualifications of their managers.

QPAM is critical for certain transactions,

but other exemptions may not apply or be accepted by

counterparties, such as cleared swaps and credit and

loan transactions. It is efficient for many more

transactions as QPAM allows plans to enter into

transactions without conducting expensive and timeconsuming checks to determine whether a counterparty

is a party in interest.

The Department has historically recognized

that extensive party-in-interest checks could result

in lost investment opportunities which would harm plan

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clients and the participants. Over the years, as

plans have become larger and have diversified their

use of service providers in the financial markets and

as financial institutions have consolidated, it would

be difficult, if not impossible, to find

counterparties for a trade who were not parties in

interest, thus necessitating the use of a 

comprehensive exemption like QPAM.

Many of the transactions that hedge risk for

plans and thus protect the participants and

beneficiaries from volatility in the markets and

interest rate risks depend principally on the QPAM

exemption. Not surprisingly, the QPAM exemption is so

common that practically all retirement plans expect

their asset managers to use QPAMs, and many of our

counterparties expect representations from us that it

applies.

The job of appointing asset managers and

deciding whether to continue to retain those managers

belongs to the named fiduciary of each plan. ERISA is

a comprehensive statute that embodies a decade of

congressional study of the private employee benefit

system. It makes plan fiduciaries responsible for

selecting and monitoring their own asset managers. We

do not believe it is in the best interest of the plans

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for the government to substitute its judgment for the

plan fiduciary's judgment, as some commenters have

suggested. The structure of ERISA and its carefully

designed allocation of duties reflects a congressional

judgment that plan fiduciary choices will better serve

retirement plans than top-down government decisions.

The Department has recognized this approach

for over 40 years. In the event of a felony

conviction, Congress authorized the Department to bar

the convicted company from serving as an asset manager

to the plan. Congress did not, however, authorize it

to bar all of the convicted companies' affiliates.

Our clients have fully considered the facts and

determined that it is in their plans' best interest

for us to continue in our fiduciary role for their

plans.

We want to emphasize that the proposed

exemption is not a waiver of the QPAM requirements.

Instead, the Department has imposed a significant

number of additional conditions that are protective of

plans and their participants. Credit Suisse is fully

prepared to meet all of the conditions in the

exemption.

We would like to note that these conditions

are comprehensive and far more stringent than those

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imposed by the class exemption or any other individual

exemption granted by the Department to a QPAM whose

affiliate has been convicted.

As Bill noted, if this exemption is denied,

Credit Suisse's QPAMs will no longer be able to serve

ERISA-covered retirement plans in an efficient manner.

Plans that have trusted and relied on QPAMs for many

years may be forced to find replacements despite their

demonstrated desire to retain Credit Suisse Asset

Management.

Credit Suisse Asset Management takes the

situation very seriously and is committed to showing

our clients that we uphold the highest legal and

ethical standards. Credit Suisse Asset Management has

a strong independent compliance department and a 

culture of clear rules, training, detailed compliance

policies, testing, oversight, and transaction review.

This has enabled us to maintain a high level of

integrity in the past and will continue to enable us

to do so for the future.

MR. JOHNSON: Credit Suisse appreciates the

Department's proposal for permanent relief. We hope

you'll finalize the exemption as quickly as possible.

We appreciate this opportunity and time. Thank you.

MR. HAUSER: Yes, thank you. Last night

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when I was thinking about this hearing I read back

through the stipulation of facts that were filed in

the criminal case, and, you know, from my standpoint

as a regulator, and I take your point that Credit

Suisse AG is a separate company and it's not getting

any of this relief, but, you know, one of the sections

in the document, in the statement of facts which was

signed off on by Credit Suisse AG is headed "Credit

Suisse's Ineffectual Policies, Training and Audits",

and what's described in that set of stipulations is

that, you know, there were a set of procedures in

place to keep, you know, illegal cross-border advice

from being rendered and to prevent some of the

illegalities that, you know, ultimately Credit Suisse

AG, you know, admitted that it had engaged in, but an

admission that the policies really hadn't been

followed, and what's more, that the audit was

ineffectual in the sense that there wasn't followup

with the specific managers that were involved. There

appeared to be some alteration as I understand it of

the evidence so that documents were changed not to

reflect the advice moving across the country, emails

were destroyed and the like.

And I guess a question I have, and, you

know, it's kind of a general question is while it may

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be one more, you know, factual point, and then I think

if I go to Credit Suisse's website, you know, clearly,

on the one hand, Credit Suisse AG and the affiliated

QPAMs are certainly distinct entities, but you hold

yourself out as an integrated family of companies

obviously, you know, offering a whole range of

services in a fairly integrated way.

So the question is, you know, given this

sort of conduct, how can you give us some assurance

that the kinds of additional protections that we've

proposed to impose here will actually do the trick?

Because, you know, they significantly center on audit

requirements and document production and the like.

MR. JOHNSON: I understand the concerns that

you're raising. I think what's important is not only

to have a very strong framework of policies and

procedures but to have monitoring, surveillance,

testing, and quality assurance to assure that those

policies are being complied with at all times by the

business.

Credit Suisse Asset Management, which has a 

strong record, an exemplary track record managing

ERISA assets, that business has been managed

independently from Credit Suisse AG; has an excellent

history in terms of its compliance with policies and

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procedures and relevant regulations and so forth, and

its monitoring and testing is a very important prong

of it. We've invested significantly in our

infrastructure and systems in view of that.

When we enter into a process, an RFP process

with plans that are looking to engage an asset

manager, it's a very competitive process. They're

looking not only to see that Credit Suisse Asset

Management has a strong performance record, track

record, and a stable asset management team, but also

has strong compliance policies, procedures, and

personnel, and we're tested on that by our clients all

the time. We live that every day.

We've now added as an additional exemption

intended to protect the plans and the participants an

independent auditor who will be auditing this business

for a 10-year period.

MR. HAUSER: So, in the wake of the criminal

case, did you revisit the sorts of policies and

procedures that were in place? Were there systemic

sorts of changes that were made at the affiliated

QPAMs? You know, was there a certain amount of, you

know, just reflection about what needs to change in

the organization?

MR. JOHNSON: Yes, we did and we continue to

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do that on a regular basis. We did review all of our,

for example, ERISA compliance policies and procedures,

found that they were strong, a strong framework. We

did make certain tweaks and enhancements as

appropriate, and we continue to do that.

MR. HAUSER: Have all the QPAMs that are

beneficiaries of the proposed relief, have they

entered into contracts with independent auditors at

this point to, you know, satisfy the conditions that

are proposed?

MR. JOHNSON: Yes, we have entered into an

arrangement with Evercore to be the independent

auditor.

MR. HAUSER: And could you submit a copy of

the contract with Evercore into the record of these

proceedings?

MR. JOHNSON: We can submit it to the

Department. I'm not sure it's appropriate as a public

record, but we can certainly give it to the

Department.

MR. HAUSER: What assurances can you give me

-- anything you submit to the Department is a matter

of the public record. What assurances can you give me

as to the auditors' access to -- you know, if it

identifies problems, breaches, you know, whether foot

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faults or more serious things, what access will it be

given to the employees and the people who are actually

involved in the misconduct?

MR. JOHNSON: The auditor will have full

access on an independent basis to work and to escalate

findings to management, yes.

MR. HAUSER: And is that built into the

contract?

MR. JOHNSON: I do not know, but that is

certainly the protocol that we would expect from an

independent auditor.

MR. HAUSER: Are there any restrictions

imposed on the audit's access to --

MR. JOHNSON: Not that I'm aware of.

MR. HAUSER: Has the company agreed or would

it be willing to agree to, you know, waive any

assertion of attorney/client privilege with respect to

communications with the QPAM fiduciaries, you know, in

its dealings with the auditor so the auditor can see

those records?

MR. JOHNSON: We would need to evaluate the

facts and circumstances of it. Clearly the intention

is to give the independent auditor full access so he

can do his job properly.

MR. HAUSER: How many different QPAMs are we

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talking about?

MR. JOHNSON: To date, three.

MR. HAUSER: Three. And is this one

contract for all three or is it separate contracts?

MR. JOHNSON: It would cover all three.

MR. HAUSER: Okay. And have you also -- I 

think the conditions of the exemption also include

terms for training. Have you similarly made

arrangements for the training?

MR. JOHNSON: Yes, we have. We have annual

compliance training through ERISA and we've engaged an

external law firm. We have a kick-off session with

that law firm who is going to be providing intensive

ERISA training to all asset management employees, to

all support personnel that work with asset management.

MR. HAUSER: Okay. Switching over to, you

know, at the start of your presentation Bill made a 

point about the various costs the plans would incur if

the QPAM weren't granted, which as I understood it

included, you know, the costs associated with

liquidating investments, finding another, you know,

money manager and the like, as well as for those plans

that stuck with you costs associated with, I suppose,

availing them -- you know, using other exemptions, not

being able to make certain investments, engage in

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certain transactions.

But is there any way to quantify what those

costs looks like more specifically? The one number

that's cited in your papers is something like $450,000

associated with three different asset management

styles, but, you know, if you have $2 billion in

assets under management or whatever the number is,

that doesn't seem like a very huge number in context.

MR. MACHLIS: I think your characterization

of the various types of costs outlined, categories of

costs, you know, market conditions change, so it's

difficult to predict. Obviously we take our

responsibilities for the participants, the

fiduciaries, quite seriously, and so, you know, any

additional cost is too much the way this is.

MR. HAUSER: Yeah. I mean, I guess let me

just before I let other people ask questions, I'd just

make an observation, and it was rightly pointed out in

the proceeding, the testimony that preceded yours,

that the Department of Labor isn't obligated to go in

and oversee the process at Credit Suisse or look over

the shoulder of the auditor, and that, you know, is

obviously a cost savings in some ways for the taxpayer

and points to administrative feasibility.

But that said, if we finalize this

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exemption, I have to say that my expectation is the

Department of Labor will be -- you know, I will send

my investigators in in this coming year, and I think

what we'll be doing is taking a look at the rigor with

which the audits have been done, the seriousness with

which the audit's been taken, making sure that in fact

the conditions of the exemption are being met.

And I just say that because it's very hard

for me sitting here without, you know, conducting an

entire separate investigation to really have an

appreciation to what extent those problems at Credit

Suisse AG are cultural problems that involve the

entire organization, and what we do not want if an

exemption is finalized is for the exemption to be as

conditions or the audit requirement to be treated as a 

cost to be minimized or as a set of boxes to be

checked. You know, we mean for it to be a serious set

of requirements.

And I guess I just worried a little bit when

I read the preamble to our exemption that it may

almost have led somebody to think that that was

something we had decided not to do when in truth it's

quite the opposite. I expect we'll be there looking

at least, you know, initially. So I would just say

that, and anything you can do, anything you can

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supplement, you know, you can provide as a supplement

to the record that would explain why we should have

confidence in the audit process, what the terms of the

audit process, you know, what you've agreed to

contractually, the kind of access you're going to give

the auditor would be very much appreciated.

Anybody else?

MR. MOTTA: I think you stated that the

asset management business of the QPAMs operated

independently of Credit Suisse AG. Has compliance

always operated independently at Credit Suisse AG?

MR. JOHNSON: Yes, it has. We have a 

compliance team that is dedicated to covering the

asset management business. It has sets of policies

and procedures that are designed to protect and ensure

that the business is conducting its activities as a 

fiduciary in compliance with the laws and regulations,

so it does function as a team. It has an independent

and strong culture of compliance. In fact, a number

of policies and procedures that we've adopted here in

the U.S. the compliance team for asset management

actually exported to other areas of Credit Suisse

outside the United States because they were being held

up as high standards.

MS. BORZI: I just have a couple questions.

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I want to underscore the importance of what we're

doing here today. The idea that these exemptions

should be fully transparent, they're subject under the

law to public notice and comment, and this hearing

really gives people the opportunity, and as Tim said,

everyone who requested an opportunity to testify we

gave, we're giving that opportunity.

But the format doesn't usually lend itself

to anything but a series of presentations and no

opportunity for people to challenge or ask you

questions. Similarly, the witnesses that we'll hear

later on during the day today won't have an

opportunity, you won't have an opportunity to ask them

questions or challenge their assumptions.

So I'm going to take on that role for you

and the other witnesses that support the exemption.

I'm going to try to channel some of the concerns that

have been raised by the other witnesses and vice-versa

when the other witnesses come to the table. So I do

want to underscore Tim's comment at the outset that

you should take nothing from the nature of our

questions or the questions themselves.

So let me start with what Tim ended, this

notion of how seriously we intend the audit to be

taken and how if this exemption were granted we would

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expect that you all would take it.

So tell us about the procedure you used to

select the independent auditor that you say you now

have a contract with.

MR. JOHNSON: I will defer actually to my

colleague, ERISA counsel who worked extensively in

meeting with --

MS. BORZI: So is that somebody we're going

to get on another panel?

MR. JOHNSON: Yes.

MS. BORZI: Okay. All right. Then somebody

remind me that that's a question I'm going to ask.

MR. JOHNSON: Yes. I wasn't personally

involved.

MS. BORZI: Because the last thing I want is

people giving answers --

MR. JOHNSON: Yes.

MS. BORZI: -- that are outside their area

of expertise.

MR. JOHNSON: Yeah. I was not personally

involved in that.

MS. BORZI: But you did talk a little bit

based on the selection question, so let me just follow

that theme another bit. You did say in response to

Tim's question that you've already begun the training

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and that you had hired an outside law firm.

MR. JOHNSON: Yes.

MS. BORZI: How did you select this law

firm?

MR. JOHNSON: The law firm is Fried Frank,

and they have a lot of expertise in the ERISA area,

and we felt that they were in a good position to

provide enhancement to internal training that we

already do on ERISA for asset management.

MS. BORZI: Have they provided any other

legal services to Credit Suisse AG or any of the other

affiliates?

MR. JOHNSON: AG, I'm not aware that they

do. They provide some legal work for -- Credit Suisse

is a large organization.

MS. BORZI: Sure.

MR. JOHNSON: So we have a number of law

firms that assist us. Fried Frank is not our main law

firm that we use. We do not have a significant

relationship with them in asset management, so they

are in that sense independent, and they have a very

strong ERISA team that will come in and give the

professionals in asset management support team

additional enhanced training, knowledge, and

information to inform our compliance with ERISA.

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MS. BORZI: Well, you can see what the

nature of our concern here would be, that again going

back to the statement of facts that were part of the

plea agreement, Credit Suisse AG admitted to the fact

that its training program wasn't sufficient. So we

would be very concerned if anybody who had a hand in

that insufficient training program was also going to

be doing some of the training.

MR. JOHNSON: Yeah. Not all of the ERISA.

As I mentioned earlier, the asset management business

operates independently from Credit Suisse AG. Credit

Suisse AG is not at all involved in the training.

This is the training on ERISA, and we've got U.S.

experts and Fried Frank coming.

MS. BORZI: So part of the reason I'm asking

these questions is that a recurrent theme in the

testimony, in the written statements of the people who

have asked us not to grant this exemption is that

there exists -- I'm not even going to say "existed",

but exists certainly a culture that seems quite

different from the culture of compliance that you two

gentlemen have emphasized in the asset management

side, that the mothership, if you will, Credit Suisse

AG, doesn't seem to have that -- again, representing

the comments that were made by the others -- that

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culture of compliance doesn't seem to be part of the

culture of the mothership, of Credit Suisse AG.

MR. JOHNSON: I can certainly speak for the

asset management business that I cover, and I've been

here at Credit Suisse for 18 years, and we are very

committed to a culture of compliance and we've always

run the business with integrity, subject to the

highest standards. Our clients or plans, participants

and beneficiaries, they expect no less from us.

So we are very comfortable with the

compliance environment that we have developed as a 

whole. And it is a business that is separate from the

problems that did occur there. We are not involved,

our employees are not involved in Credit Suisse Asset

Management. And certainly the firm as a whole overall

has taken many great strides and invested very

significantly in compliance infrastructure, and

certainly all of us at Credit Suisse deeply regret the

conduct that led to the conviction and necessitated

this hearing.

MS. BORZI: Okay. I have one question for

Mr. Johnson, and that is -- well, actually both of you

talked about the costs that your clients would incur

were the exemption not granted, and maybe it was just

the way I was hearing what you were saying as opposed

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to the way you were trying to communicate to us, but I 

got the clear sense that the assumption behind these

costs would -- was -- is that people don't change

QPAMs, that there never comes a point that people make

a decision to move from one QPAM to another. Is that

the industry practice?

MR. MACHLIS: They will make changes, but

it's their decision based on the merits of their

evaluation.

MS. BORZI: Yeah, again I understand that,

so I have two follow-up questions. The first is

clearly their decision to go with you all as the QPAM,

the circumstances have changed somewhat because the

whole point of this hearing is to focus on the I(g)

condition in the prohibited transaction exemption. So

one might argue, as some of the witnesses who don't

think the Department should grant this exemption, that

as a result of this changed circumstances some of your

clients may decide to move on.

And so then the question is what is it in

the list of things both in your written materials and

in your oral statements, the costs that people have to

incur when they make this change? Is there anything

unique to this situation except the timing that they

may have to make it on a quicker timeframe than they

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would normally? Are there any unique costs is I guess

the nub of my question?

MR. MACHLIS: I think you characterized it

correctly, meaning in comparing the situation where

they decide to fire us at a normal course --

MS. BORZI: I didn't want to use that word

because people change -- it has a connotation. People

change, I mean.

MR. MACHLIS: At a normal course versus as a 

result of the hearing.

MS. BORZI: Well, as a result of the

criminal conviction --

MR. JOHNSON: Correct.

MS. BORZI: -- and the failure, if you will,

if that's the decision to grant the exemption.

MR. JOHNSON: Correct. It's the same cost.

It's the nature of who makes the decision, when they

make the decision, and the remaining universe of

suitable choices for achieving their investment

objective.

MS. BORZI: Okay. Thank you very much for

your testimony.

MR. JOHNSON: Thank you.

MR. MACHLIS: Thank you.

MR. HAUSER: So, according to my schedule,

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the next speaker is Dr. Paul Morjanoff, and I 

apologize if I mispronounced the name.

Okay. We have a brief technical issue.

(Pause.)

MR. HAUSER: Mr. Morjanoff.

MR. MORJANOFF: Thank you. Good morning.

Firstly, we will examine the bank's

application, which is your document one. It was a cut

and paste adaptation of an old application, but it

copied obsolete questions and omitted current

questions. The regulations in force at the time of

the application is your document two.

At question two the following information

was needed: a detailed description of the exemption

transaction; identification of all the parties and

interests involved; and a chronology of the events

leading up to the transaction. None of these were

supplied.

A list of all the Credit Suisse affiliated

QPAMs and Credit Suisse related QPAMs is missing. We

don't know the scale of the operation, millions,

billions or trillions. I understand it's more

billions from the conversation. The directors, degree

of CS ownership or the connections to secrecy

jurisdictions or tax havens.

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We are ignorant of the complexity of the

structured financial products and if laundered or

untaxed money could be commingled with pension funds.

At question six, the bank claimed it would

use what is called "everyday investment transactions"

which it defined as foreign or domestic, registered or

unregistered Rule 144A, dealer equity securities,

swaps, the hedging the risk through a variety of

instruments and strategies.

This is a blank check which permits all

manner of shady, nontransparent dealings, proprietary

trading, the mess that brought around the global

financial crisis. Even worse, CS is one of the

biggest operators of dark pools, anonymous trading

platforms in the country.

The bank, however, summarized it with a 

statement. All of these transactions are customary

for pension funds. In my opinion, they're not

suitable for IRAs and the majority of plans.

No chronology of events was given. The

crime lasted over a century, and the government

complained that the applicant bank had refused to

submit necessary documentation. The bank has a 

confirmed history of obstruction, criminal activity,

and stonewalling, summarized in your document three.

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Consequently, there can be no credibility of

the bank's assurances that the assets -- sorry. The

bank was convicted of two felonies. The more serious

one, conspiracy, was not mentioned in the application.

Consequently, there can be no credibility of the

bank's assurances that the assets or staff of the

QPAMs were not involved or did not benefit from the

conspiracy. We don't even have a list of these

entities, and the bank's representative apparently was

not aware of the conspiracy crime.

The conspiracy felony is by far the greater

threat to plans, participants, and beneficiaries

because it involved a conspiracy of management to

facilitate crime. This is of universal relevance to

asset management. The legal reference for this is

United States v. Helmsley from the Second Circuit,

which states that "Conspiracy is a crime distinct from

its underlying predicate acts and purposes and

involves additional harms."

Despite the best efforts of the DOJ it

couldn't determine the extent of the bank's crimes.

All we know is the point at which the DOJ gave up.

The bank had obstructed the investigation by

destroying documents, tampering with other documents,

discharging involved staff without being interviewed

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or refusing to submit documents which it had in its

possession.

Other than criminal conduct was omitted from

the application. Credit Suisse subverted the QI

agreement. Now this is the fundamental agreement that

gave it permission to operate in this country. The

normal consequence for this is loss of banking

license. The bank was gambling with its banking

license, but the DOL doesn't have to gamble with its

pension funds by granting the application.

Then there was Credit Suisse's ineffectual

policies, trainings, and audits. Since the

ineffectiveness was not discussed, we would logically

assume that the projected policies, trainings, and

audits would also be ineffectual. The bank has had

these in place for years and apparently has become

highly skilled in circumventing them. If the bank had

been serious about changing, it would have included

details in an accountable program.

At question nine, the bank explained why it

thought the exemption would be administrably feasible.

The bank said the DOL didn't have to monitor the plan

and it relies on an independent auditor. I think your

questions covered that point quite well already. I 

note that Holocaust victims waited 50 years for their

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documents. Would an auditor wait 50 years?

At question 13, a declaration was required.

"Under penalty of perjury, I declare I am familiar

with the matters discussed in the application and to

the best of my knowledge and belief the

representations made in this are true and correct."

There is no such declaration. The author was

unfamiliar with the content.

There are people in the bank who do know the

truth of the matter. Why were they not chosen? Was

it in order to keep the truth secret?

All of these are major matters for access to

$7 trillion of hard-earned pension funds. By ignoring

them, the bank has omitted mandatory content,

trivialized criminal justice, and advertised contempt

for the law.

Some illustrative examples from our

investigations: We had a team of experts

investigating alleged criminal activity in the bank

for several years. We had extensive contact with

Credit Suisse legal department and offered our

assistance to Credit Suisse internal fraud bureau, but

this was declined. We had several well-connected

Swiss people on the team with good intelligent sources

inside the bank and inside the Zurich canton and Swiss

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federal criminal authorities and the Zurich economic

police. We also had significant contact with the

Swiss banking regulator and the Swiss money laundering

authorities in Bern.

We obtained documents legally which are not

available to the DOJ. In this way we are able to

pierce the veil of Swiss bank secrecy and we saw what

was behind it. This report is tabled as your document

four.

We confirmed a significant criminal

combination inside the bank and also that CS legal

department had obstructed and deceived the Zurich

district attorney. We formally notified CS senior and

top management of this and offered to fully document

and justify our findings, expecting that they would be

interested in this. In fact, they stonewalled us and

refused to accept our reports. We made formal

notification to CS top management multiple times but

were rebuffed.

At document five, there's the copies of the

most recent notifications which summarize the earlier

ones. This makes a mockery of the bank's claim to not

tolerate criminal activity. This notification is

dated post the application's date.

What was of extreme concern to us was that

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this criminal combination operated across five

separate Credit Suisse units and several crime

syndicate units across two continents in a manner

which required tight integration and protection from

senior management across so-called independent units.

It allegedly involved a heartless bait and switch

scheme that ordinary investors were enticed with the

savings and the securities which were promoted as top

rank. Once the bank had the money, the supposedly

top-ranked securities were switched to other but

worthless securities with a similar name but which

were indistinguishable for these consumer level

customers.

The bank refused to document the

transactions to the criminal investigation

authorities. When someone on the criminal

investigation team embarrassed the bank, typically

they disappeared from the team and were not replaced.

The bank consistently withheld documents which would

have made the crime obvious but which we eventually

obtained.

The Zurich district attorney complained

about CS's obstruction and admitted privately there is

not a single DA in Switzerland that would go up

against Credit Suisse. We later became convinced that

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Credit Suisse exerted corrupt control over what the DA

would be allowed to receive, investigate, and

prosecute as far as criminal activity inside the bank

was concerned. In this, the bank was supported by its

regulator, who on at least one occasion deceived all

EU regulators who had wanted to know why the Swiss

were doing nothing.

Bank secrecy was abused to protect the

crime. This criminal combination, because it was

protected by the Swiss authorities, is virtually

impregnable. Approving the application is support for

bank secrecy, which would undermine the majority of

honest financial providers, forcing them either out of

business or to engage in risky or illegal activities

in order to compete. By undermining the integrity of

the market, it will be against the interest of plans,

participants, and beneficiaries.

Lack of monitoring will -- you will have to

monitor, of course, an impossibly high workload for

auditors chosen by Credit Suisse guarantee

ineffectiveness. There is no effective strategy

available while Swiss bank secrecy remains and the

bank resists real change.

Denying the application gives certainty and

provides an ordered transition with minimum disruption

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over the coming year and will enhance market

integrity.

MR. HAUSER: Thank you. You know, you

submitted a quite voluminous document with a lot of

allegations and concerns, and I guess one question I 

have is in this package, and I understand the issues

you've raised, but do you have any specific instances

of, you know, entities outside, you know, of the QPAMs

that are at issue here actually engaging in

misconduct? Do you have anything that goes

specifically to plan assets or IRA assets being

mismanaged or, you know, abused in some way?

MR. MORJANOFF: Okay. I'd have to go into

the black box of the proposed investments which

covered all or wide range of investments, including

OTC unregistered securities. That's the best I've got

to go with, so that's what I'll run with.

All right. So we had cases with -- because

unregistered securities are basically made by

marketmakers, trading can be very, very thin, and, of

course, in the dark pools it's even worse.

Now it's not unusual for marketmakers to

conspire to establish a closed market, what we could

call wash trading or circular trading between

marketmakers where they can fix a market, they can fix

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the turnover. It will all be published on the website

and certainly can be seen by investors. But even

sophisticated investors will trust the NASDAQ website,

look at the market, look at the turnover, look at the

charts and say, hey, there are a lot of people

interested in this. Actually there are only two

marketmakers and are colluding.

So the case, in fact, that we were able to

document, I have to establish, we had to fight tooth

and claw to get to these documents because of Swiss

bank secrecy and the other issues concerned and also

because the fact that they use cross-jurisdictional

concealing. It's not just a matter of Swiss bank

secrecy in Switzerland, then the Americans. You've

got American bank secrecy saying we can only disclose

this to the Swiss parent.

So, if you have any connection to any

secrecy jurisdiction or any tax haven, you have a real

problem because you have an accountability issue. You

also have mechanisms like attorney/client privilege.

They might have their lawyers in the Bahamas, and you

can't get the documents from them.

MR. HAUSER: Okay. So I think I understand

your point of view, and just -- I mean, essentially is

it the case that -- I mean, your conclusion really is

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that given the course of conduct that you feel that

you've documented in this submission there is no set

of conditions, you know, or no circumstance in which

we really should grant an exemption to these entities,

I mean, that the only right course of action is a 

denial no matter, you know, what conditions we might

come up with?

MR. MORJANOFF: I'd go even further than

that. I think it's important to make the denial so

that you can monitor the process of the denial

because, as we know, when UBS had to divest its U.S.

bank customers, all they had to do was flop around to

the next customer, which in some cases was Credit

Suisse. So that I'd go one step further.

On the basis of our findings, I would expect

that unless there is real change, and I'll say

dramatic and radical change compared to what we've

seen and heard today, there will be further loss of

financial privileges by Credit Suisse. And so what

we're going through now is an ordered, timely process

to learn about a new situation.

The new situation is we have criminal banks

coexisting with legitimate non-criminal banks and this

new gray area, and to date the overwhelming reaction

has been denial. Okay, we'll just say they're a 

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normal bank. No, that's not the situation. There are

deep-seated problems that have to be addressed. They

don't have to be closed down today as a result, but if

they don't change, we must never remove that threat

that unless there is change that is the ultimate

sanction, and that normally follows with a -- this is

a repeat offender of loss of privileges, loss of

privileges, loss of privileges, and this causes

ripples through the financial system that you need to

monitor.

You need this as practice because I'm

predicting that this is not the first time it's going

to happen, but you have time and leisure to study this

process and see what happens and put your spies in all

the other QPAMs, see what they will do. See if they

go through the Bahamas to get back to Credit Suisse or

to sue or I don't know, but there's a lot of learning

to go on because it's a new day and I've got to say

that no one here is up to speed. No one is really

even admitting the scale of the problem because

they're too frightened to admit it.

MR. HAUSER: All right. Well, I very much

appreciate your comments. If there is anything more

you want to submit, do it. Unfortunately, we actually

don't have a lot of leisure, so we'll need to move on,

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I think, to the next witness. Thank you very much.

MS. BORZI: I have a couple questions.

So, for the record --

MR. MORJANOFF: Yes.

MS. BORZI: -- would you please tell us

about what you do, who did this investigation, who

were the clients, what the point was?

MR. MORJANOFF: Okay. Basically, FRCS is an

organization that works for the victims, our consumer

investors in a scam, which was a partnership between

Credit Suisse and a second company, TNST. And when we

started the investigation, this was before the global

financial crisis, we had no idea or suspicions of what

we were to find. In fact, if someone told us, we

probably wouldn't have believed it. But by launching

criminal investigations, we hired fraud firms,

investigators, lawyers, legals, we spoke to countless

lawyers, we became skilled in a field which it seems

that no one else is apparently very skilled in. So

now it seems by circumstance we've become

knowledgeable in something that the DOJ is not

admitting about.

MS. BORZI: And when did your investigations

begin?

MR. MORJANOFF: It basically began about

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2001, but they continued continually since then.

MS. BORZI: Okay. You filed lawsuits

presumably?

MR. MORJANOFF: There have been, but

fundamentally the nature of the case is criminal. It

is not fundamentally a civil matter. Obviously there

are civil law consequences as there are in what we're

looking at today. But the nature of the criminal

matter was it had to be already predesigned to

circumvent the civil law process.

We allege that this is a very large matter,

that a lot of thinking, a lot of legal expertise has

gone into creating schemes that were basically

unlitigatable, and the simple truth was it was a 

criminal matter and the criminal process was the

correct procedure which we followed. We've had

extensive liaison with international law enforcement

at UJUST, at CS's part, at the very highest level, and

also we shared our findings with the DOJ here and also

state law authorities.

MS. BORZI: So I just have one other quick

question, and I will start by saying I know nothing

about Swiss bank secrecy or American bank secrecy for

that matter. So to what extent do these Swiss bank

secrecy laws protect not just the bank, if you will,

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but of the affiliates, like, for instance, how would

they -- is there a specific provision in Swiss banking

law that would extend the secrecy protections, for

instance, to the asset management business?

And if you don't know the answer, we'd be

happy to --

MR. MORJANOFF: Okay, no. Basically yes,

but again it involves the field of forensic

accounting, which goes to the point that it would be

administratively impossible because the auditors

couldn't do it. It depends on how the QPAMs are

structured.

Now, in modern day tax avoidance, tax

avoidance has become legitimate, having shell

companies in the Bahamas has become legitimate, and

virtually all the big companies have them, and they do

it, so that's not necessarily obviously evil because

it's everywhere now.

MS. BORZI: Right.

MR. MORJANOFF: But once you have a 

financial entity in a secrecy jurisdiction you can

wash your transactions through that where they become

almost invisible. Now they all claim, and if you work

hard enough and spend a lot of money, you can find

them. But what can happen is you can wash that from

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there around the world through another 30 tax haven

and secrecy jurisdictions so that no auditor would

have the budget to follow the money.

So the problem is if you want to hide the

money, if you have any connection at all in any

secrecy jurisdiction or any tax haven, it's basically

unauditable in terms of the standards we're looking at

today.

MS. BORZI: Thank you very much for your

testimony.

MR. HAUSER: Thomas Spalding.

MR. SPALDING: My name is Tom Spalding. I'm

a retiree, so I thought I would weigh in on this, and

thank you very much for this venue and appreciate

everybody's attendance.

I guess speaking the obvious, the reason why

we're here and the root cause of our meeting today is

an ethical failure, so I've got two points that I want

to make this morning, and then I'll have a little

summary statement at the end.

So this one has to do with my first point,

culture of compliance. Culture of compliance exists

when in the end you get followers to do the right

thing even when you're not looking. And which

followers are we talking about? We're talking about

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employees, we're talking about maybe the regulated

entity. So I wanted to bring to the fore FM 22-103,

which is about ethical trading and it's entitled

"Leadership and Command at Senior Levels", and I'm

going to put that in as Exhibit A.

In particular, the whole document is really

great about how to be a leader, what the requirements

are, and I think that there are probably a lot of

leaders in this room, so I would recommend it to you

for your review, and I'll give you a teaser quote.

"Senior leaders and commanders have specific

ethical responsibilities to their organizations.

These responsibilities flow directly from the

attributes required of senior leaders to successfully

implement their vision. First, they are worthy role

models. Second, they promote the ethical development

of their subordinates by teaching them how to reason

clearly about ethical matters. Finally, they sustain

an ethical climate that promotes trust and

professional commitment."

So I hope you're interested in reading that.

In the long term, it's a game changer and I think what

we're looking at here is probably colored somewhat by

the concerns we all have for the ethical integrity of

the financial system.

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So, in the short term, though, I did bring

up Appendix C, which I'll show you a little bit. You

won't be able to read it obviously, but two columns:

healthy versus unhealthy. This is a 1987 document, so

if you go through it, it really spells out a 

continuum, and if you look at it from my perspective,

I'm interested in it because, as a database geek, I 

find in this appendix an Easter egg by the terminology

of those people, and so it's a set of 25 questions to

determine if you have an ethical, healthy ethical

climate, and you could convert this type of

information into an anonymous form or a web app to get

a picture of an organization, for example, on a 

monthly basis or on monthly intervals or after a 

meeting or before an inspection or after a public

meeting or to evaluate your sister agency, the

regulated, a stakeholder. So conceivably an anonymous

web app open on the internet Credit Suisse could use

to evaluate Department of Labor.

So this type of thing is of interest to me.

The process is analogous to a recently published study

of corruption in the States. Harvard did this, and it

was reported in my local newspaper just recently, so

it's not in my comments, but I took a little bit of

it.

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The report was done December 1, 2014, from

the Edmond J. Safra Center for Ethics, and so now I 

think I've identified a business brand for somebody.

I think it's a worthy thing to pursue. It seems like

it's mainstream to evaluate organizations this way.

To get some kind of evaluation done would be quick and

easy with a database setup on the back end, and I 

could go on and on in the details of that.

But as a web application, the secret to

compliance is convenience. So, if something is done,

basically it's whatever is the easiest. The

compliance items that you put in place should follow

human nature and this may be something that gives you

a window on you, your partners, your competitors, and

so that's why I offer it.

Once you have it in the database, this data,

you could derive reports from it. You can find out

how many people responded. So, if your organization

is 12,000 people and no one responds, you know you've

got a problem, so management has to reach out, right?

Which questions does the organization fail?

That would be of interest. Twenty-five questions.

You can kind of pierce these issues up front by these

anonymous postings.

Where are the areas for future work? When

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did we turn the corner is another question you could

ask and potentially find an answer to. So DOL should

solicit a scope for its own use, at least that, and

maybe add it to those 14 points.

The second point that I have is about the

content of pension programs, and I brought this book,

Hazel Henderson, a good read, Ethical Markets for

General Reference. I'll just limit myself to one

instance in particular.

There evidently is this potential for a 

pension to destabilize another pension through the use

of the Bankruptcy Code, and I cited a Cayman Island

reference in my written summary. I would refer you

all to that. I would encourage the DOL to see if it

can't close that and attain some type of priority for

pensioners in bankruptcy. A pension should not be

treated as an ordinary creditor. It seems to me that

Credit Suisse when it brought up the idea that it

would be using a hedge fund-like approach, this

article specifically calls out to hedge funds to use

this type of approach, and I just don't like it, so I 

thought I would bring that up to you.

In summary now: There is a viral contagion

in the financial system and I think if management

commits to an ethics program it could be fixed. This

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is a bonus season for finance obviously. Bonuses are

coming out. Does the applicant recognize -- what do

they do to recognize and reward ethics? What did it

do to retrieve the group that was in error and caused

this violation and criminal activity?

I read about Chinese walls in the filings in

the Federal Register. Isolation really does not

address the root cause. I would say that a culture of

compliance is often very difficult in companies

because we all know as human beings we joust with each

other. We have situations where maybe there's a code

word that we use, maybe it's done by a wink and a nod,

but fraud is perpetrated in these strange type of

situations, but it's everyday activity really. So how

do you address this?

As a financial leader, I would ask you would

you be willing to be seen with an ethics app on your

phone by your employees or your contractors? After a 

meeting are you willing to go to the water cooler and

ask, "Hey, Bob, did you complete the ethics app? I 

did." When your best friend sits in the front row of

the ethics training and he kicks up his feet and opens

up the newspaper, what are you going to do?

These ethical situations certainly would not

be covered by a fig leaf. This is reassuring, this

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meeting here today is giving us a lot of good, new

information I hope. I don't think an app -- I think

if there was something like that, some small thing

that everybody did in these boardrooms and so forth

that was as simple as checking off a 25-question list

maybe we wouldn't be sitting here today. Maybe we

wouldn't have the ethical questions if you just do the

small thing a little bit every day. If you commit to

it as a leader, and it sounds like some of you are

ready to say and do that, maybe today, then ethics

starts today, and maybe it will wash over the entire

financial sector because that's how thorough the

ethical problems are in my opinion from my reading,

from all the billions and billions of dollars that

have been paid in fines.

That's all I have. Thanks.

MR. HAUSER: Thank you for your suggestions,

Mr. Spalding. If there is anything you want to

include in the record, you can just submit it in the

next couple weeks.

Bartlett Naylor.

MR. NAYLOR: Thank you, Mr. Hauser, Officers

of Department of Labor, and special thanks to Erin

Hesse, who has been more responsive to email requests

for this type of information than I think I've ever

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enjoyed from any government staffer, and so thanks to

you, Mr. Hesse.

Again, my name is Bart Naylor. I'm the

financial policy advocate for Public Citizen. I think

later today you may have the honor of hearing from our

founder, Ralph Nader.

Public Citizen is an organization of roughly

350,000 members and supporters, so I think it's a 

statistical inevitability that many of our members are

themselves beneficiaries of plans that are managed by

Credit Suisse. Our members are also self-selected

activists and progressives that believe that

government requires daily exercise of citizenship, and

it's that exercise that I hope to engage in today in

going over some of the points that we tried to make in

our letter, and I'm very anxious, very hopeful, Ms.

Borzi, that I'll get to answer some of your questions.

I've also worked as the head of

investigation for the Senate Banking Committee where I 

had a front row seat to some of the financial crimes

that visited this country during the last financial

crisis during the 1980s. That was a time when there

were some 1,000 savings and loan executives who went

to jail, who paid the price, if you will, in very real

terms for crimes.

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I've also worked for the Teamsters. I was

the head of the Office of Investment, Corporate

Affairs, and needless to say the Teamsters has an

intimate relationship with ERISA given the fact that

some of the abuses of worker pension money led to some

of the very strict rules about how truck drivers' and

other workers' money should be managed.

I was intrigued by the legislative analysis

by the fellow from the Groom law firm, and I am aware

that law-making has a sausage-making element to it,

but in the end there are statutes and the Department

of Labor does issue rules that those of us can

actually read even though we did not see what went

behind the curtains.

So we come here today for two basic reasons.

One is that Credit Suisse has engaged in a massive

crime that involved many of its employees. This crime

was not a rogue employee who ran off the field for a 

short amount of time. It was essentially a business

model complete with a Credit Suisse Bank convenient to

the Zurich Airport so that American clients wouldn't

need to be bothered with the beautiful Swiss scenery

before they returned to the United States having

deposited their funds. Some 52,000 American clients

were apparently helped in avoiding paying U.S. taxes

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by their Credit Suisse enablers. You'll hear later

today another or a litany of Credit Suisse crimes.

Now returning briefly to the QPAM statute as

it's related or as it's discussed in the 1982

rulemaking. In the printout that Mr. Hesse kindly

sent to me, you can't get this online, it talks about

how the QPAM or crime of a company will eliminate the

ability of a QPAM to enjoy certain privileges

involving any affiliate of the company, and what is an

affiliate?

In other words, we're hearing Credit Suisse

make strong representations that the QPAM people were

not involved in the crime. But you go to some length

to say that that is beside the point. Any affiliate,

in fact, you even say a relative, apparently the

husband or the wife of somebody at Credit Suisse AG,

if they commit a crime, then you remove some of the

privileges of QPAM.

Further, a QPAM isn't a person. It's a 

business. These businesses work in a hierarchy, and

there is a boss above the QPAM department and then a 

boss, and then pretty soon you get to a boss who has

other supervisory responsibilities and as you go down

that chain you'll fairly soon find the crime. And so

I'm not sure why we can take comfort that the QPAM

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people were not involved in a crime when in fact

structurally in this company they were through

supervision.

I understand that we're not supposed to be

concerned with public policy. It's difficult to see

Credit Suisse and its crime as anything other than

part of a culture problem. JPMorgan in 2013 paid

penalties on any number of its businesses. CitiGroup

has committed massive fraud. So has Bank of America.

I know this because Eric Holder says so. He says so

in very colorful terms in press releases even though

we don't actually enjoy the details of the trial

because these companies are not taken to trial.

They're given either civil settlements, in which case

we don't know some of the details, or there are

deferred prosecution agreements, and so we lack many

of the details.

The Permanent Subcommittee on Investigation

looked at the Credit Suisse case and while they say a 

great deal, they offer a lot of color, they also come

into brick walls. I'm quoting, "When asked how many

of the U.S.-linked accounts opened in Switzerland were

hidden from the United States, Credit Suisse told the

subcommittee that he's been unable to determine or

estimate that number. When asked how much money was

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involved in the undisclosed Swiss accounts, Credit

Suisse was again unwilling to answer."

So I caution those of you who will make this

decision when you assess the credibility of the

assurances of Credit Suisse that nobody was involved,

that somehow the culture is fixed.

The New York Federal Reserve President

William Dudley gave a speech recently where he

lamented the corruption of culture, the corruption on

Wall Street, and he said that maybe what we should do

is take the most senior executives of a bank and cut

their payment into two parts: one, the cash that they

would get, but then another would be a deferred pool,

and this pool would be used to pay the fines

regardless of the responsibility of the person.

So, in other words, you would take the top

2,000 people at JPMorgan or top 1,000 at Credit Suisse

and part of their pay would be put into a deferred

account, and if Credit Suisse pleaded guilty or

entered into a settlement where they had to pay a $3

billion fine, then this pool would be used first.

I raise this because this to me is part of

the same spirit of the QPAM statute where you say that

these privileges are lost to manage truck drivers'

money and so forth in complex instruments or engage in

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things that are otherwise a conflict of interest. If

even the affiliate of the company engages in

wrongdoing, I think the best way or our way is to

oblige your statute to make sure that everybody at

Credit Suisse, even the QPAM folks are going to be

policing the tax evasion department of Credit Suisse

and/or the newly honest tax evasion department will

make sure the QPAM department is honest.

One small point I hope you will foresee or

others is how much Fried Frank will be paid. We're

told this burden, financial burden on Credit Suisse

will be $400,000 or something like that, a couple

basis points of the $2 billion they manage. I assume

Fried Frank is not doing this pro bono or the monitor

that will be hired. I'm wondering if the expense of

becoming more honest than normal at Credit Suisse will

be somewhat similar to the other burden of simply

divesting of these complex instruments that are

otherwise unavailable to them if they don't enjoy QPAM

status. Thank you.

MR. HAUSER: So I think it would be helpful

to me if you could maybe just explain where you stand

vis-à-vis, you know, the exemption. Is your objection

essentially that in your view we just shouldn't ever - 

- you know, anytime somebody engages, anytime a 

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corporation, a QPAM, or an affiliate of it engages in

a crime we should just stick to, you know, the I(g)

conditions and say they cannot serve as a QPAM and

that's that, or are you saying something more nuanced?

MR. NAYLOR: Well, I think if the rules of

the road are clear, then yes, I think the simplest

course of action is that. Your concern needs to be

about the beneficiaries. Beneficiaries have plenty of

choices for a QPAM though. Lots of investment

managers out there that presumably -- there are a few

left, I hope, without criminal convictions, deferred

prosecutions or civil settlements, so yes.

MR. HAUSER: And so I think I understand --

well, let me -- I mean, I think your view is that the

cost really to the plans of eliminating access to the

Credit Suisse QPAMs is not particularly great, and

there may be some benefit from that. But what is in

your view the additional benefit that would accrue to

the plans?

I mean, in this case at least, Credit

Suisse, you know, this wasn't a case where there

wasn't some factual development. There are stipulated

facts. There was an entry of a judgment of

conviction. Credit Suisse was required to pay 2.8,

you know, plus billion dollars, and it's hard to at

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least from my standpoint, it's hard to see how what we

do here is going to appreciably -- if that isn't a 

sufficient deterrent, you know, for misconduct, it

seems even if I thought it were appropriate for us to

make decisions based on that deterrent issue, it's

hard for me to imagine that what we do here is going

to make an extra difference, you know.

MR. NAYLOR: Well, I actually take almost a 

completely opposite viewpoint. I view that as a painfree guilty plea. That $2.8 billion as far as I could

tell was paid by shareholders. I have seen no

disclosure that senior executives reached into their

own personal pockets and paid that money. I have not

seen anybody with handcuffs and their arms behind

their back walking off to jail. In fact, I'm told

that there have been conversations with the

Comptroller of the Currency, the Federal Reserve, the

Federal Deposit Insurance Corporation, the Securities

and Exchange Commission to make sure that nothing

really happened other than there is this black mark in

a piece of paper that says guilty on it and that

shareholders are $2.8 billion poorer with Credit

Suisse.

So, in fact, if these other promised

penalties are removed, if banks do not get their

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charter revoked, as did happen with Riggs Bank, for

example, if the Securities and Exchange Commission

issuers retain their well-known season issuer status,

then I think you're sending a signal that if you're

well lawyered, if you're of a certain size, and if you

get your shareholders to pay enough that it actually

gets into the newspaper as a penalty, then you're

fine.

MR. HAUSER: But, I mean, I would think the

role of the Justice Department in this case was to

make a determination as to whether or not the

sanctions were adequate, and our role in this

proceeding is to figure out whether or not the

exemption we come up with is adequately protective of

participants or whether the plans and participants are

going to be injured.

And I understand your point that, you know,

you have issues maybe with what the Justice Department

did, and you don't think the costs necessarily are

going to be all that great to plans and just telling

them, well, you're not going to be able to rely upon

Credit Suisse being a QPAM. But I'm not sure what

benefits you think -- I still guess I don't understand

what you think the initial benefits are going to be

that are going to accrue to the benefit of a plan if

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we just turn this exemption down and say we're not,

you know, going to give it to you.

MR. NAYLOR: Well, in this series, this

decision tree that you've outlined, there's at least

one sentence that I wish you would restate. Once the

Justice Department metes out a penalty you have to

oblige the QPAM statute which says they lose that

status. The next step isn't to figure out if an

exemption is workable, it's to figure out what is in

the best interest of the plan beneficiaries, and is

there no option better than the one that Credit Suisse

proposes.

MR. HAUSER: Do you, I mean, and let me just

repeat the question I asked somebody else. Is there

some set of conditions that we could impose on the

grant of an exemption here that would make you

comfortable with that, you think that it was a good

idea to grant the exemption?

MR. NAYLOR: Well, I don't actually wake up

every day trying to figure out how to make life better

for Credit Suisse.

(Laughter.)

MR. HAUSER: That would be a very specific

sort of --

MR. NAYLOR: Yes. This would be a great day

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for Credit Suisse to bring out plan beneficiaries and

to tell you how much they love Credit Suisse and how

when they go back to their customers they tell them,

you know, this company committed a crime of historic

proportions, but I've decided to use them to manage

your money as opposed to anybody else because of the

following reasons, and I ask you to let them tell you

what those reasons were because if I ran a church

pension fund or a Teamster pension fund, I'd rather

not answer the question, hey, didn't Credit Suisse

just plead guilty to massive tax fraud? I think I 

would just rather get another QPAM, and I hope there

are some.

Are you going to help me out, Ms. Borzi?

MS. BORZI: What I'm going to do is I'm

going to assure you, and I think you probably know my

history, that we will for sure be looking at the costs

and the connections associated with the hiring of any

of the service providers for this exemption. I 

actually was going to ask a question about your

intents, but I think I know the answer, and so

therefore I think I'm not going to do it.

MR. NAYLOR: I will conclude, if I may,

Credit Suisse wants you to view yourselves as some

kind of an umpire calling balls and strikes and ignore

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the fact that there is public policy involved, and I 

think I believe that's a fatuous argument and I would

call your attention that the ranking member of the

House Financial Services Committee, Maxine Waters, has

sent you a letter today pointing out the important

public policy issue that you cannot avoid and asking

you to deny this waiver. Thank you.

MS. BORZI: Can I just say one thing? You

know, to me personally the number one issue is the

issue you identified. I take very seriously, we all

take very seriously the notion that in order to grant

any exemption the number one criteria, it's no

accident the number one criteria is that it's got to

be in the best interest of the participants and the

beneficiaries. And I agree that the burden will

always be on the applicant for an exemption to make

that kind of unmistakable evidence, and that's what

we're going to be looking to see.

MR. NAYLOR: Thank you.

MR. HAUSER: The last witness before we

break for lunch is John Popp.

MR. POPP: Good morning. My name is John

Popp. I'm a managing director of Credit Suisse and

head of the credit investments group at Credit Suisse

Asset Management. I've worked in asset management and

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financial services for over 30 years in a number of

senior positions and I've been with Credit Suisse for

15 years approximately.

Madam Secretary, before turning to my

prepared testimony, I'd like to follow up on the cost

question that you posed earlier to Bill Johnson.

The dollar amount given of $450,000 was a 

conservative estimate simply of the liquidation of a 

portfolio were we to be terminated.

A fiduciary may change managers on the bases

of performance, asset allocation shifts, or other

factors. We have kept our clients fully informed of

the evolving exemption process and appropriate

notifications have gone out. Not only have our

institutional ERISA clients chosen to stay with us,

which includes two of the 20 largest corporate plans

in the United States, we have gained additional ERISA

clients since the settlement.

The named fiduciaries themselves have

decided not to change managers. Denying the QPAM

exemption would effectively take the decisionmaking

process out of their hands, and I do not believe this

is in the best interest of the plans or protective of

the plans' participants, which we estimate to be over

one million individuals.

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While the costs of liquidating the portfolio

itself may seem modest, there would be substantial

costs in moving to a new manager, which a fiduciary

would typically consider in its evaluation of

potentially changing mangers.

The stock and traditional bond markets have

many, many managers. We happen to offer a strategy

that is a subset within fixed income relating to

senior loans and the number of managers in that

universe is substantially smaller, and smaller still

when one looks to the experience and scale of our

business.

When replicating a portfolio in the

strategy, there is certainly the bid/ask issue. So a 

bid/ask in our asset class ranges between 50 and 100

basis points, and it's tracked by the Loan Syndication

& Trading Association, estimated it was 90 basis

points through the month of December. So that applied

to a billion dollars of new assets would be a more

substantial number. That would be about $9 million.

It would also be the time out of the market

issue if a plan were to liquidate and try and find a 

new manager, what would that cash be put into? Unlike

certain stock and bond investment strategies, loans

does not offer an inexpensive alternative through

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futures or ETFs. In fact, the ETFs that are offered

in the loan market have substantially higher fees than

we charge our ERISA clients.

There is the cost and time of these plan

staffs themselves in conducting a new manager search,

often with outside asset consultants; the circulation

of requests for proposals and the evaluation of those;

the legal costs in documenting new contractual

relationships with trustees, administrators,

investment managers, among others; and ultimately it's

highly unlikely that the portfolios that are

liquidated would necessarily be reconstructed to the

same level and the same positions. Different managers

may not follow particular names, or certain names may

not actually be available in the market given the

scarcity and illiquidity in our particular asset

class.

So, again, the notion of denying the

exemption certainly would cost fiduciaries to make a 

change that at least today they have not seen to be in

their best interest despite the other things that have

been said, and we certainly don't think it would be in

their interest to be put in that position.

So, with that --

MR. HAUSER: And I'm sorry. Can I --

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MR. POPP: Yes, please.

MR. HAUSER: How many assets, what size,

approximate dollar size are the assets under

management that we're talking about?

MR. POPP: So I'm speaking specifically

about our credit strategies. We have approximately

$1 billion.

MR. HAUSER: Thank you.

MS. BORZI: And that's all three QPAMs?

MR. POPP: No, that is just credit. I think

the aggregate number is slightly over two. The

commodity strategy does have more liquid alternative

options. Commodity is approximately one billion.

MS. BORZI: Approximately five, 5 billion?

MR. POPP: No, no, no, in the aggregate a 

little over two of specifically designated ERISA

money.

So I'd like to accomplish three things in my

additional comments. First, to express my and my

team's regret regarding the behavior of certain former

Swiss-based employees of our affiliate, Credit Suisse

AG, which led to this hearing. My second objective is

to provide an overview of the benefits of the

specialized investment services that we provide to

plan sponsors. And finally, I'll revisit why I 

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believe denying Credit Suisse's asset management

business a QPAM exemption could harm ERISA clients and

their participants.

On the first topic, we understand the

disruption that the conduct of those former employees

has caused our plan clients and the uncertainty it has

created in the markets. I'm here today to assure you

that Credit Suisse's U.S. asset management business

was not involved in this conduct. Indeed, there has

been no allegation from any regulator to the contrary.

Further, we have not employed and will not employ any

of those former employees.

On the second topic, as I mentioned, I head

the credit investments group of Credit Suisse Asset

Management. At year-end 2014, my team managed

approximately $34 billion in specialized fixed-income

strategies. Fixed income is viewed by pension plan

investors as an important component of a diversified

strategy. Our primary strategy focuses on the

investment of a subset of fixed income known as senior

loans, which are made to corporate borrowers in the

United States primarily.

This strategy has emerged as an increasingly

attractive complement to traditional fixed-income

allocations based on structural attributes of the

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underlying loans. In particular, investors have been

quite concerned about the significant duration risks

in their fixed-income portfolios which can be quite

sensitive on a price basis to moves in interest rates.

Senior loans offer investors an effective

duration hedge against movements in rates given the

floating rate nature of the loans, potentially

reducing price volatility as a result in shifts in

rates. In addition, in the current low-interest rate

environment, investors have looked to senior loans,

which have a high relative current yield, to provide

important interest payments to help meet pension

obligations. Within this strategy, Credit Suisse's

asset management business is considered by plan

sponsors and institutional investors to be one of the

market leaders.

First, our senior management team is truly

among a handful of managers that have managed through

multiple credit crises. The four senior members of my

team are going on their eighteenth year of working

together.

Second, the size of our platform is

sufficiently large to make us strategically important

to each of our counterparties, therefore benefitting

our clients by our access to primary and secondary

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deal flow.

And third, our longstanding performance

track record dating back to 1998. According to

eVestment, a leading investment database, our

performance has been top quartile for risk-adjusted

returns in our strategy for one, three, five, seven,

and ten years. This combination of factors has led

multiple plan sponsors to allocate their portfolios to

our team, seeking to outperform the relevant benchmark

but to do so with lower volatility.

In addition, our asset management business

also offers a diversified commodities index strategy

with $10 billion in assets in the aggregate, not all

of which is ERISA money. Investors seek exposure to

this asset class as a portfolio diversifier and as a 

hedge against unexpected inflation.

Credit Suisse's asset management business

has been managing this strategy on behalf of

institutional clients since 1994 and is one of the few

managers in the space with this amount of experience

and assets. We believe we are one of the top five

asset managers in this specific strategy measured by

assets under management. Within our top five peer

group, we believe we offer a highly differentiated

process. In addition, due to the turbulence within

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the commodities markets over the past few years, we

have actually seen several managers exit the asset

class.

Lastly, I want to reiterate the potential

harm that denying Credit Suisse's asset management

business a QPAM exemption could cause to plans and

their participants.

Within traditional stock and bond

investments there are hundreds of managers offering

similar strategies. This is in stark contrast to

senior loans and commodities where managers offering

the specialized skills within these strategies are

much fewer in number. Smaller still is the number of

managers offering the experience, scale, and

performance history of Credit Suisse's asset

management business. Therefore, finding a replacement

for us may be difficult.

The process pursued by our clients in

selecting a manager typically involves an array of

steps. These may include circulations of requests for

proposals; discussions with consultants; extended

operational investment; due diligence; meetings with

portfolio managers and credit analysts; investment

committee approvals; establishment of investment

guidelines; fee negotiations; establishing appropriate

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data feeds and operational support; and other

contractual negotiations.

Altogether these steps have taken as long as

18 months for some clients. Thus, it may take a plan

sponsor a significant amount of time to find and

implement a new manager if it were required to replace

us. Our clients have spent considerable time and

resources conducting manager searches and they have

selected us.

In this regard I would like to emphasize

that since the Credit Suisse AG settlement no

institutional ERISA client has terminated its mandate

with Credit Suisse, and, again, we have actually

received new ERISA clients since the settlement. If

we are unable to manage their assets, ERISA plan

clients may be denied the opportunity not only to use

their selected manager but also the opportunity to use

our strategies. This could undermine the named

fiduciary's role in selecting a manager for a 

particular strategy. It may also have collateral

consequences for the rest of the plan's portfolio:

for example, other strategies within the ERISA plan's

portfolio may need to be changed to accommodate the

loss of these strategies.

The Department issued QPAM exemptions over

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30 years ago to increase trading efficiencies. Its

relief is broad. Broker dealers and other trading

partners understand its conditions in contrast to

other exemptions. Thus, they may price trades higher

or require additional security reliance on other

exemptions if they are willing to trade at all.

I know we need to earn our clients' trust

every day. We serve at their discretion, and at all

times we seek to do the best job managing their assets

to uphold the highest ethical standards and to be

consummate professionals in how we do our job.

We thank the Department for its work on this

exemption which will allow plans to avoid potentially

negative impacts from liquidating portfolios and

changing managers when they would otherwise choose not

to do so. We hope you will be able to finalize the

permanent relief as quickly as possible. Thank you.

MS. BORZI: So certainly the description of

the effects on your clients is persuasive and the fact

that you represent that none of the clients, even

knowing about the criminal conviction, have left you,

and you've even gotten more. So that gets me to

wondering, and one of our other witnesses raised this

issue, as to why neither through our public comment

process nor in this public hearing process any of your

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clients have ever come forward to make a case for

themselves as to why it would not be a good idea to

not grant you -- to fail to grant you an exemption.

What do you think is going on there? Do they sort of

not know?

MR. POPP: I think they're fully aware of

this and we have certainly made them fully aware of

what's going on. I think they speak with their money

and their decision to keep their assets with us. But

I can't specifically answer on their behalf as to why

they chose not to write.

MS. BORZI: Well, I think we operate based

on a public record, and while it's useful to us to

hear your representations, it would make, one would

think, a stronger case for the points that you're

making if your clients were willing to step forward

and participate in this process. Just a thought.

MR. POPP: Okay, thank you.

MR. HAUSER: Thank you very much.

MR. POPP: Thanks.

MR. HAUSER: We'll plan to start up again at

1:15. Go have lunch or do whatever you'd like.

(Whereupon, at 12:17 p.m., the hearing in

the above-entitled matter was recessed, to reconvene

at 1:15 p.m. this same day, Thursday, January 15,

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2015.)

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A F T E R N O O N S E S S I O N 

(1:19 p.m.)

MR. HAUSER: I take it you're Heather Lowe.

MS. LOWE: I am. Well spotted.

MR. HAUSER: Okay, welcome.

MS. LOWE: Thank you. So thank you very

much for the opportunity to testify today. My name

is, as we've established, Heather Lowe. I am legal

counsel and director of government affairs at Global

Financial Integrity.

Global Financial Integrity is a nonprofit

organization based here in D.C. that looks at the

movement of illicit money around the world and works

to curtail the movement of that illicit money, much

like the illicit money that was moved in the form of

tax-evading funds by Credit Suisse AG.

The majority of our work focuses on actually

the developing world where nearly a trillion dollars

leaves the developing world in illicit funds annually

and, of course, that money has to end up somewhere and

it often ends up in banks in the U.S., in Switzerland,

in London, in the Cayman Islands, et cetera. I'm best

known for my work in the money laundering area. I sit

on the industry consultation for the Financial Action

Task Force, which is the international anti-money

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laundering standard-setting body based in Paris.

Prior to joining Global Financial Integrity,

I worked in international banking and finance,

primarily representing international financial

institutions and private equity houses.

Our position today is that this proposed

exemption should be denied. As the statute states,

this is an integrity issue. The Department of Labor

regulation is very clear: that because of Credit

Suisse AG's felonious conviction Credit Suisse AG and

all of its affiliates are now barred from enjoying

QPAM status. This regulation exists because there is

a very strong public interest in the protection of

pension funds. Pension funds enjoy that high level of

protection by the U.S. Government because if they are

not protected and people lose their retirement savings

they then become a massive drain on this government

and indeed other taxpayers.

Therefore, I'd like to begin by reiterating

what we believe is the correct line of inquiry for

this hearing. We believe the Department of Labor

should be asking what compelling public interest

exists to warrant the granting of an exemption or

waiver to Credit Suisse so that Credit Suisse can

maintain this preferential privileged status under

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U.S. law. How does that interest outweigh the already

identified and codified public interest?

The burden is on Credit Suisse and in fact

the Department of Labor given that you've proposed

this exemption to prove the compelling public interest

in them actually retaining that privileged status.

In my request to testify I included several

references to significant regulatory infractions by

Credit Suisse AG and its affiliates, and I note that

that's very important, "and its affiliates", it's a 

group-wide issue, leading to fines and deferred

prosecution agreements in the U.S. and elsewhere.

These violations include knowing and intentional

violation of U.S. sanctions laws; failure to provide

accurate information to investors; sales of

derivatives intending to help banks hide huge losses;

and misleading investors regarding mortgage-backed

securities. In fact, some of Credit Suisse's activity

was so egregious that in Japan they were actually

barred. Their banking license was actually revoked in

Japan.

I believe that other witnesses will be

discussing these and other violations in much greater

detail, so I'm not going to use the time today to do

so. I will, however, use this time to note that the

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history of violations shows that in direct

contradiction to what Credit Suisse will likely assert

today Credit Suisse does not have a history of

compliance. Whether or not their compliance program

appears robust, as they will, again, probably testify

today, their history tells you that it is not.

Credit Suisse AG's criminal conviction is

not an isolated incident, and it's not an issue

specific to Credit Suisse AG, but it's simply one more

indication of a systemic group-wide problem with how

they manage fiduciary responsibility, investor

transparency, and regulatory compliance. 

Assistant Attorney General Lanny Brewer from

the Department of Justice made the following

observation about Credit Suisse in a 2010 speech made

in front of the American Bar Association/American

Bankers Association joint conference. He said that,

"Last year, for example, Credit Suisse admitted to

systemically evading over the course of a decade U.S.

sanctions against Iran, Sudan, Burma, Libya, and Cuba.

Credit Suisse set up a system, some might even call it

a business plan, to deceive the United States by

disguising U.S. dollar clearing on behalf of countries

that the U.S. had banned from our financial system.

Credit Suisse even advised and trained the sanctioned

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entities on how to avoid the automated filters at U.S.

banks. In essence, evading our banking regulations

was a service offered by Credit Suisse to sanctioned

countries. As a result, Credit Suisse illegally moved

hundreds of millions of dollars through the American

financial system."

Credit Suisse was convicted in November of

that same sort of intentional systemic illegal

behavior that was essentially a business plan with

respect to tax evasion. Lessons were clearly not

learned in the sanctions debacle.

As Attorney General Eric Holder put it in

the Justice Department's announcement of Credit

Suisse's guilty plea, "This case shows that no

financial institution, no matter its size or global

reach, is above the law. When a bank engages in

conduct this brazen, it should expect the Justice

Department will pursue criminal prosecution to the

fullest extent possible."

These are very strong, very clear statements

from the Department of Justice, some might even call

them directions, regarding Credit Suisse's very

deliberate, highly planned, illegal behavior that went

on for years and years.

Credit Suisse executives will also likely

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today argue that the cases that we're citing don't

reflect current Credit Suisse activities or

compliance. We ask the Department of Labor to bear in

mind that it can take several years to investigate and

develop a case like these, especially where Swiss bank

secrecy is involved. And while those testifying today

will also be describing a very bleak history, some of

the cases being referenced include illegal activity

being carried out through 2010, not very long ago when

you consider how long it takes to develop one of these

cases.

Credit Suisse is offering promises and a 

description of an improved compliance program. The

compliance is proven over time and through actions and

not with written policies. Credit Suisse needs to

prove its compliance to regain the trust of the U.S.

Government, and U.S. pension funds should not be in

jeopardy during that period.

You've heard Credit Suisse executives this

morning talk about economic efficiencies and how

allowing them to continue to provide QPAM services is

economically efficient for fundholders. The

Department of Labor should be asking what makes Credit

Suisse's provision of these services more economically

efficient than any other QPAMs' provision of these

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services. As the Department of Labor knows, there are

many other QPAMs out there who have not been convicted

of regulation tripping felonies.

What service is Credit Suisse providing that

they cannot? Wouldn't economic efficiency be restored

if plans were migrated to other QPAMs? Shouldn't that

be the default position with Credit Suisse paying for

that migration?

They talked a lot this morning about how

much it would cost the fundholders, right. It

shouldn't cost the fundholders. It should cost Credit

Suisse if they're no longer able to, obviously,

provide those services. Again, the fundamental

question is, what is Credit Suisse providing for

fundholders that other QPAMs are not able to provide?

You will also hear testimony today from

recipients of Credit Suisse's charitable giving. I 

found that very interesting. We believe that this

testimony should actually be set aside as irrelevant,

if not be viewed actually against Credit Suisse's

interest.

First, providing funds to charitable

organizations does not mitigate illegal behavior. We

don't accept that argument with respect to, for

example, the Mafia, and you shouldn't be considering

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it here.

Second, Credit Suisse's charitable giving

budget very likely matches the amount of money that

its tax advisors told them would result in the most

tax-efficient outcome. Our tax laws are structured to

incentivize this kind of charitable giving, and so to

suggest that Credit Suisse's charitable giving is

altruistically motivated is misleading.

Finally and probably most importantly,

because of its illegal activities over the past

several years, Credit Suisse had a greater amount of

profit and therefore a greater charitable giving

budget. That means that at least some of Credit

Suisse's charitable giving is a direct result of its

illegal activities, including the activities for which

they were convicted. The Department of Labor should

not be entertaining the idea that Credit Suisse should

be given some sort of moral credit for donating some

of these proceeds of their crimes to charities, and

the charities should probably be aware of this as

well.

Finally, you asked whether the safeguards in

the proposed exemption were adequate to protect the

rights of the participants and the beneficiaries of

the plans that Credit Suisse corporate group members

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manage. Given Credit Suisse's history of intentional

violations of U.S. and foreign laws that involve

crafting systems to get around those laws, I think

that it would certainly be a very big gamble on the

part of the Department of Labor, and I would not want

the Department of Labor gambling with my pension fund.

In addition, Global Financial Integrity does

a great deal of work in the area of money laundering,

and over the past few years the structure of

"independent auditors" who are actually paid by and

interact closely with the companies they are hired to

audit has been called into question because the audit

firms have been found to be allowing the companies to

scrub those audits, among other things.

In the proposed plan, the auditor isn't even

government-appointed here. They will be chosen by

Credit Suisse. The audit will be addressed to Credit

Suisse and not to the government. The combination of

a company known to look for ways to get around

compliance and an audit environment of complicity does

not inspire confidence with respect to the proposed

oversight plan.

Despite that, I have set out some other

concerns with respect to the oversight plan that are

very specific in an additional document that I 

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provided, but I stress that no oversight plan would be

robust enough to address the severity of the problems

with Credit Suisse right now. Let's put that 10-year

QPAM ban in place and see how well their compliance

program actually does. Then we should be

reconsidering.

I'll end my remarks here today. Thank you

for giving me the opportunity to share our concerns.

We look forward obviously to hearing the outcome of

your deliberations, and of course I'm happy to answer

any questions. Thank you.

MR. HAUSER: Thank you. So, you know, part

of what Credit Suisse says, I think, is that the QPAMs

that are getting the relief here aren't Credit Suisse

AG.

MS. LOWE: Uh-huh.

MR. HAUSER: Credit Suisse AG, they've

acknowledged, engaged in criminal misconduct both here

and in the Justice Department proceedings, but they've

been convicted for that. They've paid a fine, and

they note that, you know, the exemptive relief we're

giving doesn't extend to them. It extends to entities

that weren't involved in the crime, didn't engage in

the crime, aren't employing people that were involved

in the crime.

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Why isn't that an adequate answer to most of

the concerns that you've raised? And do any of the

cases or the instances you've cited, do any of them go

to mismanagement of plan assets or IRA assets or

crimes with respect to plan or IRA assets by the

entities we're actually giving the relief to?

MS. LOWE: Sure. So, first of all, I would

say that I've given you in my submission, my original

submission to the group, to the Department of Labor, a 

lot of instances of other affiliates of Credit Suisse

AG that have fallen afoul of the law or, you know,

have been fined, have entered into deferred

prosecution agreements, et cetera, for a lot of

different activities, right.

So this is not a compliance issue that is

specific to AG. Yeah, the conviction we're talking

about that led to this is specific to AG, but the

compliance issue certainly is not, and we don't know

how far that stretches, right. We do know the tone

from the top is incredibly important. You hear that

over and over and over, and what we're hearing is that

tone from the top is not there, right. It is not

resulting in the kind of compliance you want.

I've given you some examples in what I've

provided of transgressions with respect to investors,

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right. To me, that's quite close to a pension fund,

right. Those are peoples' personal investments, so to

me that's pretty analogous. That lack of, not only

lack of care but actually proactively wanting to dupe

investors has me very worried about, you know, what

message that sends to the rest of the group and in

fact the QPAMs we're talking about here.

MR. HAUSER: And in your view, what about

the argument that Credit Suisse makes that this to

some extent ought to be a matter of choice by the plan

fiduciaries that, you know, or IRA owners that choose

to rely on Credit Suisse?

MS. LOWE: Sure.

MR. HAUSER: Our exemption requires a notice

be delivered to the customers, you know, advising of

the criminal conviction and its consequences, and

there are costs associated with moving your money to a 

different investment manager, liquidating investments,

and why is it wrong to say that, you know, those are

costs that the plans and the IRAs ought to be

permitted to decide whether they're prepared to incur

or not rather than have us effectively, you know,

cause those costs to the customers?

MS. LOWE: Okay. Well, obviously long

before we came along it was decided by the people who

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drafted the regulations that this was not an issue

that should be left up to the investors, that this was

important enough to actually boot them out, right, to

provide that protection. So the world has --

MR. HAUSER: Right. Those were just people

like me who drafted those rules.

MS. LOWE: Right, but that's the law.

MR. HAUSER: Right, but this proceeding is

one in which we have the authority to grant and write

an exemption, and it's in the statute, and the

question is just, well, should we. And certainly

there is precedent for us granting this kind of

relief, you know, because we have in other cases.

MS. LOWE: In every other case I would note

actually.

MS. HALL: May I address that?

MR. HAUSER: Sure.

MS. HALL: I think you can't say that

because you don't know that.

MS. LOWE: Actually, you guys said that.

MS. HALL: No, we didn't say that we --

MS. LOWE: You put it in the --

MS. HALL: -- in every other case. I mean,

there are instances where people will call us and

propose a situation and not file an application

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because we tell them we're not likely to grant an

exemption in that case. There are also exemptions

that may be filed and withdrawn. You don't see them

posted in the Federal Register. So I think the

statement that we granted these in every case is

really overbroad.

MS. LOWE: I simply took that from the

Federal Register, your statement, so, you know, I'm

repeating your statement.

MR. HAUSER: Okay.

MS. LOWE: If that's erroneous, that's --

MR. HAUSER: But I guess I just go back to

the question. We certainly agree that that was a 

worthwhile condition to include in the QPAM exemption.

We don't plan on taking that out of the QPAM

exemption, but we also have authority under our laws

to grant new exemptions with additional conditions if

we think it's appropriate.

MS. LOWE: Right.

MR. HAUSER: And one response to somebody

getting in trouble and blowing the I(g) condition is

for us to say, well, we'll let you conduct business,

but we'll impose a bunch of new conditions.

MS. LOWE: Right.

MR. HAUSER: And I guess, again, the

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question is just why is that not the right approach

here? Is it some inadequacy in the conditions we

presented?

MS. LOWE: No, it's not the right approach

here because Credit Suisse AG as a group has shown

over and over and over again that it really tries to

get around compliance, right. If we were talking

about another financial institution, this would be a 

different discussion, right, and it would be factbased based on that institution, and we're having that

discussion now.

MR. HAUSER: Okay.

MS. LOWE: And that's what's so important

about this hearing.

MR. HAUSER: And I suppose what would be

helpful, I did read your submission, but if some of

these examples that you gave specifically involved

plan assets or IRAs or you think are particularly

compelling, I would just -- you know, I'll look at it

again.

MS. LOWE: Sure.

MR. HAUSER: But it would be helpful if you

supplemented the record --

MS. LOWE: Okay.

MR. HAUSER: -- and just kind of tease that

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out at least for me.

MS. LOWE: Okay, thank you.

MR. HAUSER: Thank you.

Anybody else?

MS. HALL: I would just add that if in

particular they address the asset management

affiliates?

MS. LOWE: Uh-huh. Yes. Okay.

MR. HAUSER: Thank you very much.

MS. LOWE: Thank you.

MR. HAUSER: James Henry, James S. Henry.

MR. HENRY: My world is a world of Tax

Justice Network, and we worry about tax havens and

private banks and corruption and, like Heather, the

developing world as well. The reason we're here today

is because we think that Credit Suisse got a very

light fine from the Department of Justice. It's not

$2.68 billion by the way, it's $2.6 billion. It's tax

deductible in Switzerland. No senior executives at

Credit Suisse were fined or went to jail as a result

of this penalty. Credit Suisse gave up no private

banking client names to the U.S. Government, even

though Senator Levin pressed for that, and as recently

as March 2014, Kathryn Keneally, who is the AAG who

was involved in negotiating this settlement, was

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pressing hard for those names to be released. She

resigned two days after the settlement was announced

in May.

She got a call from a guy at the White

House. His name was Broderick Johnson. He's an

assistant to the President of the United States. He

said the CEO wants this case settled. And John

Podesta, who is a counselor to the President, was paid

$1.3 million by Credit Suisse in the last three years.

They are active lobbying on behalf of this client.

This is not a politically neutral antiseptic decision

that you're making.

Now why are we here? You have a narrow

responsibility the way you read the law.

Traditionally you've interpreted this only as looking

at ERISA and protecting beneficiaries. But we hear

contradictions in this morning's testimony all over

the place. We hear that the costs of leaving the plan

behind would be very high for the plans involved, and

yet on the other hand no plan has left, so they must

be low.

We hear that you are hiring independent

monitors as opposed to withdrawing this exemption, and

yet the independent monitors you came up with were

Roger Altman's Evercore and it wasn't you that

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selected them, it was Credit Suisse, and Fried Frank,

which has lots of business with Credit Suisse AG,

including the Genzyme deal in 2011.

So I guess, you know, I have lots of issues

with the arguments that have been made so far, but I 

think the biggest question is why are you here. If

the plan beneficiaries could vote with their feet and

have not done so, what do we draw from that? Does the

Department of Labor just wash its hands of this case

and go home because the plan beneficiaries have

decided already? Well, then why do we have this law?

Why do we have this procedure, and why do we have this

hearing?

I suggest that there are very strong values

at stake here for the public in terms of sanctions for

a major financial institution on a global basis to

learn once and for all that this kind of behavior is

something that senior management will be held

responsible for one way or another, not through fines

that could be passed along to consumers or to

shareholders, not through, you know, apologies,

certainly not through the kind of waivers that have

been systematically granted not only by you and by the

SEC, by the U.S. Federal Reserve in this case for

Credit Suisse's status as a prime dealer. It's waiver

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after waiver. So effectively the value of the

criminal plea has been obviated, has no teeth, has no

impact.

Furthermore, in the presentation that I've

presented here, I've made the argument, you know,

there's a host of specific lawyer-like objections that

we could talk about. You know, you really ought to

get -- if you're going to have monitoring, you ought

to have monitors who are going to be not chosen by

Credit Suisse or at least there ought to be some kind

of independent process for getting their inputs,

making a competitive bidding process. We'd love to

have some outstanding consulting firms and NGOs

involved in reviewing this bank from the inside. But

you ought to have them comply with requirements of the

Federal Register, your own executive order that they

ought to be delivering the data. As one of the

earlier speakers noted, there is no detail on how much

assets, how many plan participants there are. You

know, we have rough estimates of rules of thumb, $2

billion, $1 billion. We're taking Credit Suisse's own

words for anything, much less the cost of transition.

You have an obligation here to look behind

those claims and that rhetoric and to find out

independently what is true about how competitive this

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market is, how big a cost there would be, why the

beneficiaries haven't showed up at this hearing. You

know, is this a case where the crimes of Credit Suisse

are so great that they are able to cross-subsidize

this business and so that, in effect, any legitimate

QPAM holder with integrity is basically priced out of

this market? I suggest that there are public policy

issues that cannot be avoided.

This is a large part of the pattern,

unfortunately, in this financial institutional history

that we have. We have a long history of flagrant

behavior per organization across many years, many

jurisdictions, many types of crimes. In Credit

Suisse's case, I found 35 separate settlements,

penalties, and disgorgement interests since 1998,

totaling $6.75 billion. For the top 22 banks in the

world, the total for that same period was $246

billion, most of it in the last two years. It has had

no impact on their behavior.

The regulatory agencies that are in charge

of financial behavior of institutions are vulcanized.

They don't agree upon themselves. They defer

responsibility to each other, and, you know, like we

heard this morning, the Justice Department was

supposed to have done that. Nobody's in charge of it.

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We have five different regulatory agencies at the

federal government alone looking at bank behavior, and

the sanctions have had no impact. Why is that? Two

hundred forty-six billion dollars, it had no impact on

bank behavior other than this year looking forward.

Well, as I said before, no executives have

lost their jobs in this period. We've relied entirely

on fines. We've granted routine waivers, and if you

look at this from a cash flow perspective, all of the

excess returns -- I have charts on this in the

presentation -- were earned in the period from 1998 to

2007 when we had this neoliberal period of excessive

de-regulation when regulators influenced by the banks

took their hands off the switch, opened the door to

all kinds of misbehavior, massive amounts of fraud.

Six hundred and fifty-five separate offenses by the

top 22 banks. Everything from money laundering and

mortgage fraud to tax dodging that's evident in this

case.

And I think what you have to hear from the

American people, not just me as an NGO activist here

but as someone who has been in the corporate world. I 

was chief economist at McKinsey. I worked for Jack

Welch at General Electric. I'm now a senior fellow at

Columbia and I've spent a lot of time with students

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trying to encourage them to take an interest in

business. We have had it with the banking industry,

and we've had it with weak regulation. The time for

that is over, and it's your job to do better.

MR. HAUSER: Just maybe one or two

questions. You know, I don't see the mechanism for us

to hold, as you say, senior management responsible.

Now whether we grant or deny the QPAM exemption,

nothing is coming out of the pockets of, you know,

directly anyone in senior management as a result of

that. So I just --

MR. HENRY: Well, let me talk about that for

a second because it's very important to understand the

incentive structure of these major institutions, and

I've worked for many of them. The thing that they

would really take seriously obviously is not something

you can ordain and no one is holding the Department of

Labor responsible for this misbehavior. This is a 

massive public policy problem. We have a more

powerful banking industry than we had in the S&L

crisis days of the late '80s when the 880 bankers went

to jail. And the first Bush Administration was

actually pretty tough on these people.

But now the top four or five banks have 40

to 50 percent of the market. We spent a lot of money

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bailing them out. TJN published a study showing how

those banks, the top 22, have moved about $12 trillion

offshore beyond the reach of tax authorities as of

2010. The figure is larger now. They made tax

dodging for the wealthiest people on the planet

another business.

So I'm not blaming the Department of Labor

for all of these institutional problems. I would

really like to encourage you to use what you have to

put their feet to the fire, and I'm not a Libertarian

in this view in this area. I would like to see you

monitor them, but I would like to have monitors that

we can count on to really insist on a better

performance standard and to make sure that that

happens.

What we heard today was that there is zero

synergy between corporate AG and this pension

management business. They don't derive any benefits,

it's all negative synergy. There's no argument in the

world for even keeping it within Credit Suisse. They

should spin it off. If they really wanted to prosper,

they would do so. Rename themselves immediately.

It's not helping their cause.

But, you know, I think your decision is not

about, you know, do we not grant another exemption. I 

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understand that there is lots of precedents for giving

this kind of exemption. You know, I think, I mean,

you know, my preference would be that you denied it,

but the issue is if you're going to have monitoring

let's put some teeth in it.

And then the issue comes down to how much

discretion do you have to actually influence the

monitoring process, to set targets, to examine their

competitive performance internally. What is their

bonus structure? How are they rewarding ethical

behavior? How are they avoiding the kind of insider

trading scandal that Evercore, who was hired by the

monitor, as their monitor, was subject to in August?

One of their senior partners, you know, two and a half

years in prison for insider trading.

So, you know, this isn't a DOL problem any

more than it's just a Credit Suisse problem. It's a 

huge industry that we have to clean up, but it's

something that can start here if you simply send a 

signal we're not just rolling over this time, this is

different, we hear the American people, we want much

more ethical behavior on the part of our largest

financial institutions.

MR. HAUSER: Thank you. I much better

understand what you are asking for.

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MS. BORZI: I just want to go back to a 

point that you made before because I think it's a 

very, very important point. The reach of our

authority is obviously much more limited than the

Department of Justice or many of these other agencies,

and so that's why we sound like broken records all day

here by asking for your help, for your advice about

additional -- you know, one tool we do have is we

never grant any of these exemptions without

conditions, and I don't know whether you were here for

the testimony this morning, but in addition to the

conditions that already existed, this particular

exemption has added a whole host of additional things

that we haven't put in other exemptions.

And so what I think I'm hearing you say is

we should go even farther than these conditions if we

are thinking about granting it.

MR. HENRY: Well, I'm specifically concerned

about having the auditor -- you know, there's a 

question about what they could actually audit and what

that consists of.

MS. BORZI: Right.

MR. HENRY: I'd like to have the scope of

that audit extend to the systems that have

traditionally been broken within some of these

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institutions in terms of risk-taking. We're talking

CEO awards and incentives and structures.

You know, basically if you look at the, and

I have a lot of data in this presentation I gave, any

one of these institutions looking forward from the

date 2000 would have said if I misbehave and I take

risks with the law, the fines are not going to come in

until 2014, and that's what we've seen. So I get all

this cash flow up front. It's strictly kind of an

investment decision. The net present value of crime

in the financial world because of the way we rely on

ex-post facto litigation so heavily to deter this as

opposed to prevention, as opposed to up-front

regulation, but the net present value of crime is

positive by any stretch of the imagination and it's

very lucrative.

MS. BORZI: And these fines are just a cost

of doing business.

MR. HENRY: It's a cost of doing business

and by the time they have to pay them many of the

managers have moved on or they've gone, so it's not an

effective way of running, you know, a railroad, to

have -- I mean, last year banks in the United States

paid less in corporate income taxes to the federal

government than they paid in fines. That means

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essentially you're getting -- it's like the drug

enforcement business. The enforcers have become

beneficiaries of the fine system. They're sort of

symbiotic with the fine system, and I think that's not

the way to, and it's not having the kind of impact

that we need to have on the margin on incentive, on

deterrence for other activities because everybody,

every bank in the world is looking at what you're

doing now.

They're saying, well, if we have, you know,

a QPAM, do we have to worry, you know, if we get in

trouble down there? And if the answer is it's just

easy to walk through that process, it isn't painful.

So rather than just say no to Credit Suisse, go away,

you're denied an exemption, I would like to have for

Credit Suisse a ladder of pain, and so they never --

MS. BORZI: We started everything by

saying --

MR. HENRY: They never --

MS. BORZI: -- making it clear there are

investigators who are going to be monitoring.

MR. HENRY: That's what we need to double

down on, reenforcing that and making sure exactly what

that means, and the first thing to do is to choose

auditors who are independent of Credit Suisse and of,

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you know, banks like the ones I've mentioned or law

firms that have close ties to these people. And if

they find it a grueling experience to go through this

kind of monitoring after they've had a QPAM exemption,

they may regret not having -- that would be my dream

is that they regret not having been denied this

exemption.

MR. HAUSER: Well, an exemption with a 

ladder of pain built into it, that would be new for

us.

MS. BORZI: Well, we do have a ladder. You

just have to get over it.

(Laughter.)

MR. HENRY: But you have to start somewhere.

MS. BORZI: Got it.

MR. HENRY: And I think, you know,

leadership on this issue is really -- this is an

opportunity for people to set some standards and to

show an example to the industry. So I look forward to

your decision.

MR. HAUSER: Thank you very much.

MR. HENRY: Thank you.

MR. HAUSER: Andreas Frank.

MR. FRANK: Okay. Thank you for giving me

the opportunity to testify here today.

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MR. HAUSER: You may need to speak up

louder.

MR. FRANK: Okay. Thank you. Okay. Is

that better?

Thank you for giving me the opportunity to

testify today. I have been an associate of Goldman

Sachs in New York and in Zurich and served as a 

director of HSBC in Germany in my former life. I 

advise the German Parliament and the Council of Europe

on anti-money laundering and consult companies on how

to comply with the national AML laws.

So why I'm here and why I think your

decision will have also international reach? When I 

started to look into this, it came to my mind that in

the announcement of today's hearing the DOL states

that in the past, without exception, when faced with

companies convicted of not adhering to the law, the

Department has granted exemption. So the DOL

statement raises for me the question what felonies and

violations of law a bank has to commit before a 

request for an exemption will be declined.

On May 19, 2014, Credit Suisse AG,

Switzerland's second largest bank, pleaded guilty to

conspiracy to aid and assist taxpayers in filing false

income return and audit documents with Internal

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Revenue Service. The bank agreed to a statement of

facts that detail the nature of this conspiracy which

is worthy of international crimes really and involve

hundreds of Credit Suisse employees, secret offshore

accounts and sham entities and foundations. In short,

this was a broad-based and coordinated sizable

financial crime enterprise.

The use of structures to hide the beneficial

owner has dramatically increased in 2006, the UBS

case, not only in Switzerland but worldwide. It's a 

problem for anybody that is in the fight against

organized crime and money laundering, low structures

which hide the beneficial ownership of, the use for

and by organized crime for money laundering.

They will also undermine the attempts by a 

factor in the context compliance as well as the OCD,

automatic information exchange, to stop tax evasion

worldwide. I think these schemes are not over.

Credit Suisse CO Brady Dougan, and I have to

say I have a lot of friends in Credit Suisse that

dislike what happened to the bank. He testified under

oath before the Senate Committee on February 26, 2014,

that the bank's efforts to help clients avoid taxes

was limited to a small group of rogue bankers.

In the May plea agreement, Credit Suisse

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repeated its claim that senior management did not know

about the bank's misconduct. Mr. Dougan has held the

CEO position since 2007 and has been a member of the

executive board since 2003.

In 2006, I was asked for help in a 

succession case. The deceased, a Canadian citizen

living in Germany, had evaded taxes by hiding his

fortune in Credit Suisse numbered accounts. In my

discussion with the bank's legal department, it became

clear that the bank not only aided and abetted tax

evasion but also wittingly violated European and

German law to cover up the tax evasion scheme. The

bank provided a tax structure with fake Swiss resident

and delivered cash amounts above the legal limit to

his German home. The bank confirmed that the CEO of

private banking, a guy by the name of Walter

Berchtold, who is no longer with Credit Suisse, was

informed about the case.

In 2011, a German court sentenced Credit

Suisse to a total fine of 149 million Euros for

helping German citizen to evade taxes. The fine

mainly siphoned off profits which the bank had made in

the years 2004 to 2010 with helping German tax

evaders. By the way, in Germany there is no criminal

law for corporations.

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The court ruling describes in detail how the

Swiss bankers have systematically helped the German

tax evaders to hide money from German tax authorities.

A number of Credit Suisse senior management supported

the large-scale tax evasion according to the court

ruling. Several Credit Suisse employees accepted

penalty orders to settle the case quietly. Credit

Suisse did not appeal the court's ruling and accept

the verdict.

The Schweizer Wirtschaft personnel for bond,

the official body representing staff of Credit Suisse

and other Swiss banks, reacted with astonishment to

Mr. Dougan's comments before the Senate Committee,

saying it was hardly credible that the bank's bosses

knew nothing about the practices, expressing the

suspicion of perjury. It was common knowledge that

tax evasion was a strategy, a business model pursued

by many banks for a long time, this organization said.

Credit Suisse senior management's claim they

had no knowledge about the huge tax dodging scheme

within the bank is not credible. According to the

Swiss financial watchdog, FINMA, Credit Suisse

violated its duty to identify, limit, and monitor risk

involved in its U.S. client business over here.

The lack of internal supervision and

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monitoring seems to be ongoing. In March 2014, the

press reported that Credit Suisse in Germany was

searched for possible large-scale inside trading

involving Credit Suisse employees. Despite the

obvious management failures, Credit Suisse had

retained most of its senior management.

The admission of weak internal controls and

supervision by the bank and the Swiss supervisory

authority should cast doubts about the enforceability

of the rigorous requirements demanded by the DOL for

the exemption. I like to hear what you said today,

that you will enforce it. I think it's very

important, taking those statements from the financial

watchdog.

Then I can cut short here. In my

professional work, I'm used that the United States of

America being the most transparent country on

information. However, with respect to this hearing, I 

was a little bit disappointed because none of the

important numbers about the QPAMs or the size of the

business wasn't available to take in consideration.

Now, to summarize, Credit Suisse shows

serious governance and compliance deficits. There is

suspicion of false statements in the hearing before

the U.S. Senate Committee and the Department of

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Justice. Last but not least, Credit Suisse has a long

history of violating the law.

Before any waiver is granted to Credit

Suisse AG the bank has to prove to the public that it

has come clean with its past of secrecy and opaque

dealings. If, however, Credit Suisse wants to remain

a secretive Swiss bank, it should spin off or sell off

its U.S. business and affiliations. Then the need for

an exemption would no longer exist.

Thank you for your time.

MR. HAUSER: Thank you.

MS. BORZI: I just want to pause on this

last comment that you made because our prior witness

made the same comment.

MR. FRANK: Right.

MS. BORZI: That one way to avoid the

problem is to no longer meet any of the affiliate

tests.

MR. FRANK: Right.

MS. BORZI: And, you know, do you think

that's a realistic alternative?

MR. FRANK: Why not? UBS has proposed this.

I mean, why not Credit Suisse? If it's really not the

core business, why not have it spinning off? It comes

under U.S. jurisdiction. You don't have the issues of

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secrecy anymore, cost monitor, it's the same business.

MS. BORZI: Yes, can I ask a similar

question to one of the questions I asked our earlier

witness who talked about the Swiss bank secrecy laws?

MR. FRANK: Right.

MS. BORZI: Are those kinds of laws the same

in Germany?

MR. FRANK: No.

MS. BORZI: So they don't apply?

MR. FRANK: No.

MS. BORZI: Wouldn't apply?

MR. FRANK: No. It's difficult for German

law enforcement to go against those laws.

MS. BORZI: Thank you. And so would

affiliates of a bank be able to claim protection to

not disclose things in Germany?

MR. FRANK: Well, again, you know, first you

have to get evidence before you can go -- okay. This

is the game of -- this is the game.

MS. BORZI: Assuming you had -- I don't know

whether --

MR. FRANK: Yeah, but it's, you know, a long

time thing. You know, you have to apply for it, you

know it from the Senate hearing, you know, how many

names were given. I think 5 percent of the demanded

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22,000 or whatever. So it's always the same game. It

makes life in anti-money laundering extremely

difficult, and also I think, you know, we all talk

about the worldwide efforts to stop tax evasion. With

these possibilities to hide the beneficial owner,

forget about it.

MS. BORZI: Thank you for your testimony.

MR. FRANK: Thank you.

MR. HAUSER: Ralph Nader.

MR. NADER: Good afternoon. Thank you very

much for having me here and express some of my views.

Obviously, the recidivist character of Credit Suisse's

crimes has been chronicled by prior witnesses, and in

my prepared statement I just summarize them briefly.

I won't take the time to do that.

I want to begin by just saying some

preliminary remarks because statutorily or otherwise

you're in a cul-de-sac as to how much you can do, but

the cul-de-sac has to be stretched by your own

judgment and your own reception to continuing evidence

of the behavior of this bank as well as other

motivations.

Let me start by saying if an individual

committed the crimes that Credit Suisse committed, the

diversified, recidivist, long-term crimes at a lower

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level quantitatively, that individual would be

prosecuted, convicted, sent to a penitentiary, and not

allowed to service any pension plans as an

extracurricular activity. We wouldn't even be here

now.

So we're dealing here with a corporate

entity, we're dealing here with almost a case study of

rampant corporate privileges, immunities which end up

with impunity. The 2.6 or 7 billion dollar fine is

like an excise tax that is transferrable. It doesn't

really go to the core of the DNA of the criminal

operation run consciously, creatively, dynamically by

hundreds of Credit Suisse operators with clearly the

knowledge of the top officials.

I worked at the Department of Labor many

years ago with Assistant Secretary Daniel Patrick

Moynihan. He was head of the policy division. And

from time to time we'd have occasion to talk about

what we called no law laws, that is, laws that really

aren't laws. They're overcome by power in a variety

of ways. Either they're badly drafted by design in

Congress, reverberating from corporate lobbyists and

corporate law firms, or they have low budgets and

there's no opportunity to enforce the law in many

respects, like the IRS shrunken budget, trying to get

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by their own determination $300 billion of evaded

taxes a year, a year, $300 billion, and their budget

is being cut now, so it's less than an aircraft

carrier costs, about $10.7 billion, to collect 90

percent of the revenues, or there's a lack of

political will at the top of the Executive Branch that

reverberates down, and more recently, spectacular

opportunities for jurisdictional escapes by

multinational corporations. Tax havens are an example

of that.

And this gets me to the first of three

points in my testimony, which is the waivers. Waivers

are originally inspired by the tradition of a court of

equity. In the old, old days back in England you had

very rigid laws and they developed a court of equity

next to a court of law to provide some flexibility,

and that's the inheritance of these kinds of waivers,

to provide flexibility.

But they have been transformed into a 

capital asset for these corporate criminals and a 

capital asset for corporate law firms who make a huge

amount of money getting waivers from all kinds of

Departments: Department of Education, Department of

Defense, IRS, NHTSA, Department of Labor, on and on.

And so we now have a government of waivers, a 

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government of exceptions run riot, and I want to just

bring to your attention for your extracurricular

reading there's a book that came out called A State of

Exception by Giorgio Agamben, which I'll give you an

excerpt from, and he surveys Western democracies and

what's happened to the rampant expansion of waiver

processes and how they can transform democratic

processes into authoritarian edicts.

So starting with the first of my points,

which is, and I just gave it to you, the policy

ramifications of granting waivers to corporations that

have engaged in prohibited transactions. I discuss

some of the waivers that you've given or the

exceptions to other banks, six of them in the past.

You have an unblemished record here of consistency.

Nobody can accuse you of unpredictability.

(Laughter.)

MR. NADER: And I have a summary paragraph.

The Department of Labor has an opportunity here to

stand proudly at its post and send a clear signal to

other qualified professional asset managers that if

you commit unthinkable criminal violations you lose.

On the other hand, a permanent waiver would signal the

Department of Labor's continual tolerance of cutting

corners and criminal wrongdoing by powerful financial

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institutions at the expense of consumers, democracy,

and the rule of law.

Notice here that the FCC has linked in by

statute the character of a corporation as a 

qualification for retaining a license, getting a 

license, or losing a license, and I go into that in

some detail, but you might want to review that in

terms of incorporating the issue of character here

because we have with the FCC the following components

of character: (1) evidence of misrepresentation or

lack of candor; (2) evidence of anti-competitive

practices; (3) evidence of violation of laws; (4)

evidence of dishonest or deceptive practices. And

sort of sounds like Credit Suisse, doesn't it?

The company itself has escaped remarkably

with the help of King & Spalding and other corporate

law firms, who get very little attention by the press

other than to be called prestigious corporate law

firms. I don't know where they got the word

"prestigious," but if anybody perforates the rule of

law more efficiently, creatively, vigorously, and

dynamically, more than corporate law firms I'd like to

hear about it. Brilliant. They are responsible and

they cannot escape simply by saying we're providing

legal services for these corporations.

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Credit Suisse not only has provided all

these criminal behaviors as a capital asset to sell,

but it's in its DNA. They got no prosecution of the

top two bosses who are allowed to remain in charge.

It evokes a new book out by Professor Rena Steinzor

called Too Big to Jail which just came out, University

of Maryland Law School Professor, and the need to

focus criminal prosecution not just on corporations

but on the corporate executives if we really want

deterrence.

They also were allowed to retain 22,000

client names of the tax evaders. They didn't have to

turn them over as a group to the Justice Department.

And then after it was over there were statements by

the executives saying, "No problem. It doesn't affect

our business very much at all. We can continue

operating." I mean, how many fingers in the eye do

federal officials have to take from a company like

that, and they are not the only company?

The deterrent benefits of enforcing the law

and regulations in matters involving corporations are

part of the penumbra that you have to be concerned

with it seems to me. This is a criminal matter. So,

if the question is why don't you let the plans decide,

well, there are two reasons why that's not enough.

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One, we don't even know what they believe

because there doesn't seem to be any evidence in the

record. I don't know if you've surveyed the 100

plans. I know one Texas retirement system quit in May

after the criminal plea, with a press release saying

we suspend trading with them at this time, which

meant -- for the Texas Employees Retirement System

manages $25 billion to state workers, and then the

memorable quote, "We have a policy against hiring

firms convicted of felonies."

So the question is, are you letting the

workers have a view here who have their money in these

plans? Are you letting the plan administrators be

informed about their options? There's a kind of

routine that operates here. It's like how hard it is

to change your bank these days. But more important is

this. It's like the civil justice system and the

criminal justice system. If someone's wrongfully

injured by a perpetrator and doesn't pursue tort law

claims, that's not the end of it. The government has

a prosecutorial interest in that. So there's a civil

side and there's a criminal side. And so whatever the

plans think or do or are engaged in or whether they've

been wined and dined by Credit Suisse, et cetera, you

have an independent responsibility, it seems to me,

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because of the criminal nature of this.

And then I do what I often have never done

before, and I say if you continue your unblemished

record of exceptions, why do I ever concede that? I 

have a whole list of conditions that you really should

consider here.

Thank you. Oh, by the way, the material is

still coming over the transit. A whole body of

information just came to us from Texas on a case a few

years ago where the -- and it was a concluded case

involving Credit Suisse where the judge said, "Credit

Suisse's actions in this case were so far overreaching

and self-serving they shock the conscience of this

Court."

Now watch the ending. The parties engaged

in an agreement where the counsel for Credit Suisse

conditioned the agreement on vacating the judgment.

They now obliterate the law. All this should raise

our collective sense of urgencies here. We're

witnessing a massive corporate crime wave in the

United States and other places in the world where the

law is being perforated. The rule of law is being

corporatized, commercialized by people in government

as well who are under political pressure to go easy

and adjust requirements on these corporate criminals

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and they're looking forward to jobs in Cahill Gordon

or Cravath Swaine when they leave the government.

That's not a healthy environment for equitable

prosecution of law against the big guys, and to try to

convince the little guys and the little people that

there's an even-handedness here that can be

established and defended. Thank you.

MR. HAUSER: So we'll certainly look at the

additional conditions you laid out. I guess the one

question I have is in a sense just what do you think

is at stake here. I mean, a lot of the rhetoric in

your answer to me seemed a little out of keeping with

what's actually at issue here.

I mean, you know, we aren't granting a 

waiver really. We're granting an exemption that only

has to do with transactions that don't involve selfdealing. You know, it's essentially we're letting

them engage in a series of transactions with parties

related to plans and pretty garden variety sort of

transactions if we give the exemption. We aren't

giving them a pass from the self-dealing provisions.

We're not giving them a pass from the duties of

loyalty or prudence. We're not giving any relief

whatsoever to the entity that was actually convicted

of the crime, you know. But if we did it, we'd be

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permitting these affiliated entities to continue to

engage in this sort of one set of transactions but

with a lot of additional conditions.

And I guess one way I heard what you were

saying was just given kind of the conduct and maybe

given the current environment, from your standpoint,

if we're going to ever get to where you think we need

to be, we just have to say no almost kind of

regardless of whether, you know, from kind of a 

dollars and cents standpoint that has that much impact

in a particular case.

The other possibility is what you're saying

is that if we would actually deny this exemption it

would have a deterrent impact, and to me, I'm just

having a harder time seeing that piece because it just

doesn't seem that the magnitude of the relief -- if

the penalties that the Justice Department got in their

case weren't good enough and the money that these

folks have already paid wasn't good enough to deter

them, it's hard to imagine just from a cold cash kind

of standpoint that this is going to be the thing that

puts us over the top. You know what I mean? And so

I'm just -- that was a little bit rambling, but how do

you -- I'd appreciate a response.

MR. NADER: Thank you. I think, first of

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all, in any legal system worth its salt Credit Suisse

would have had its charter pulled right there. That's

the way you do it. I mean, history of corporate

charter, they pulled the charter of Standard Oil in

Ohio in the 1890s. So, I mean, there's a tradition

here. But that sort of is off the table these days.

But secondly, just look at laser-like on the

pension plans. Put yourself in the place of that

world when a Department of Labor in effect does not

require Credit Suisse to rebut a presumption that they

are going to continue their ways. You would think

they would have a severe burden of proof here for a 

rebuttable presumption all the way down to the plans

to find out are they wining and dining, is there

something going on here, are the plans oblivious as

one of you mentioned to what's going on.

So I think you would be assisted if you saw

yourself in an educational role to confer with these

plans, and you already have one that's quit, and say,

look, do you really want to be associated with

somebody like this? Do you want to have a 

reputational taint? Do you want to have an unrebutted

presumption by a corporate criminal that it's going to

be as clean as a whistle from the top down from now

on?

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And, of course, I don't buy this idea that

this is a subsidiary, you know, that didn't engage in

all this. That's just another example of how

corporations evade responsibility. This is a 

centralized bank. All these banks are centralized

from the top. They make mistakes and they don't know

what's going on sometimes, but there's no doubt about

how authority is hierarchical and top down.

So I suggest that you go to the pension

plans, survey them or do all the things you know a lot

better how to do than any of us, that's your work, and

say do you really want this, and if they say, no, we

love Credit Suisse, we can even pronounce it in

French, you're still not finished with your obligation

because you have a parallel obligation reflecting the

criminal nature of this, this whole operation.

You know, there must have been something

that happened in Austin to immediately put this press

release out for the Texas Workers Retirement System.

Maybe they know something none of us know. Maybe they

can sort of extend this reputational taint that they

said they didn't want to have anything to do with.

Also, it's all part of the thing that

corporate crime pays, that corporate crime pays. The

Texas system, the retirement system gave $800,000 in

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fees a year to Credit Suisse. So isn't that something

to ponder? Why should corporate crime pay?

MS. BORZI: Well, I think that you've raised

some very interesting issues. I do notice -- I 

quickly scanned down some of your suggestions that

some of these things are questions that I asked this

morning. We have one more Credit Suisse witness, and

my staff reminded me I forgot to ask one of the

questions because the first group couldn't answer it.

So I'll try to get to the bottom of some of these, but

I think you pose some very interesting things for us.

MR. NADER: I do want to thank my colleague,

John Richard, for helping in preparing this, and I 

want to make one other point.

There is a remarkable correlation in the

world of corporate crime and how easy corporations get

off by who represents them, and if they're represented

by any of the top 20 or 30 giant law firms, it's just

remarkable the effectiveness of watering down what

would otherwise be more strict sanctions, and this is

part of the routine press release that we see where

the top enforcement officer of the SEC leaves, and

there he is, he's got a 4 or 5 million dollar job now

with a law firm. This is a merry-go-round that is

extremely corruptive, and nobody who knows anything

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about top level government employees and what they're

paid, the moment they see that they have a real

capital asset in their expertise they're jumping ship,

and that has an effect in terms of their anticipation

of do they want to be known to be patsies? No. Do

they want to be known to be partly firm? Yes. Do

they want to be known to be really tough? No. And

this all comes from shrunken enforcement budgets. The

budgets are spectacularly deficient compared to the

size of the corporate crime scene. The entire legal

staff of the Justice Department can fit in the room of

Baker & Botts in criminal prosecution.

You know, as I say, I did go beyond the culde-sac, but it is important to look at these from a 

broader frame of reference because the broader frame

of reference is going to be affected by what you do.

Thank you.

MR. HAUSER: Thank you for your testimony.

Emidio Morizio. You folks travel in twos.

MR. RADEY: I'm Bill Johnson. We tried to

confuse you today.

MR. MORIZIO: Sure, my name is Emidio

Morizio, and I'm here today with Neil Radey, our

general counsel.

MS. BORZI: I'm sorry.

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MR. RADEY: Oh, I'm sorry. Go ahead.

MR. MORIZIO: My name is Emidio Morizio.

MS. BORZI: Yes.

MR. RADEY: And my name is Neil Radey. I'm

the general counsel in the Americas.

MR. MORIZIO: Okay. Before we start I 

thought it might be helpful if we address a couple of

points that were raised earlier by some of the

commenters. One of the most important was on ethical

behavior. One thing I would like to point out is that

CS has instituted training with respect to ethical

behavior and it impacts all employees, and what this

does is effectively states how employees should be

conducting themselves on a daily basis, and it

addresses transparency; integrity, which I know has

been addressed quite a bit this morning; respect;

compliance with law; confidentiality; and trust.

Secondly, I want to point out that Asset

Management has a long history of complying with all

applicable laws. I know there's been a number of

discussions today about, you know, failure to comply

with laws with many CS entities around the globe, but

for the QPAMs themselves, which we're speaking about

today, there is a long history of compliance with

laws.

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Also, Asset Management, we are a fiduciary

to the plans and to their participants, and we take

that role and responsibility very seriously.

The culture of compliance of the QPAMs is

very strong in my impression. I've been with the

organization for over 15 years. The tone at the top

from both senior management as well as with legal and

compliance professionals is exemplary from my

perspective.

I also want to rebut a few points that were

made a few moments ago. Texas Retirement System is

not a client of CSAM. It is not a client, so they

have not terminated us, so that statement is not

correct.

Also, I'd like to point out that we do have

a robust gifts and entertainment program policy. All

gifts and entertainment with ERISA plan officials must

be pre-cleared with the legal compliance department.

Okay, now to my prepared testimony.

Good afternoon. My name is Emidio Morizio.

I'm the global head of compliance for Asset

Management. I'm here with Neil Radey, our general

counsel, and so Neil?

MR. RADEY: I also had one question that I 

wanted to address that's come up a couple times this

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afternoon and this morning, and it relates to Swiss

secrecy. So Swiss secrecy relates to activities in

Switzerland and it's for the benefit of clients, so

it's not for the benefit of banks, and it has no

extraterritorial application. So, again, the QPAM

entities that we're talking about, none of their

activities are in Switzerland. Every activity will be

auditable by the auditor. We can give you trade

information. We can give you time of execution.

There is absolutely no limitation on your ability to

examine any of those activities, so that question we

should really take off the table for this.

MR. MORIZIO: In addition, they use U.S.

custodians, so all that information is accessible in

the U.S.

MR. RADEY: And then I have some prepared

remarks and I'll go through those and then I'll also

try to address some of the other questions that have

come up and then, of course, you know, we'll obviously

answer any other questions that you have.

So, again, as I think all of the CS

witnesses have said, we really do appreciate you

taking the time today, giving us the opportunity to

come in and talk to you a little bit about this. And

what I thought we'd try to do is talk a little bit

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more about some of the legal standards applicable to

this particular exemption.

You know, my understanding and our

understanding is, notwithstanding what we've heard

about Credit Suisse and Credit Suisse activities

around the world, that the exemption is only granted

by you and you have complete discretion to do this

when it's in the interest of plan participants and

beneficiaries and those parties are adequately

protected. The other conditions, interesting but

generally not relevant.

So what we want to do today, Emidio and

myself, is give you probably three or four major

points. One is to really focus on our compliance

program. We've had a lot of criticism of other parts

of our business. Some of those criticisms date back

to the late '90s, but I think what we really want to

do is give you a very solid snapshot of what we look

like today.

We want to let you know that that program

and that framework is robust. We want to assure you

that we can and we will meet every condition that you

have included, and one of the things that we'll do is

we'll also touch on some of the other comments that

other witnesses have made.

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A lot has been said about the tax case.

That's really not a surprise. But we really are a 

leader in transparency globally. We were one of the

first adopters of FATCA, and as we've heard, many of

these matters, although resolved recently, relate to

conduct that ended years and years ago. So what we're

trying to do, again, is look at the lens, today's

lens, today's compliance program, today's management

team, and our commitment to being transparent and

being a forthright and compliant organization.

The conditions that you've proposed are far

more rigorous than those that have been contained in

the QPAM exemption, and I think maybe everybody in the

room knows by now they're far more rigorous than any

that have been proposed historically. Notwithstanding

that, we think that we absolutely will be able to meet

those conditions and we share your concern. The

conditions are all designed, they're detailed, they're

all designed to protect plans and plan beneficiaries,

and really that's our interest, that's Emidio's

interest, it's what he wakes up, goes to bed thinking

about every single day.

So a little bit about the legal and

compliance department in the U.S. Today it

approximately consists of about 400 professionals. We

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cover all aspects of our business. Our firm and our

department are committed to a strong culture of

compliance, ethical responsibility, and doing the

right thing for our clients. We take pride in what we

do and we've got a strong record in the U.S. We

invest in hiring and retaining top legal talent. Some

actually come from the law firms that Ralph was

alluding to, but we invest and maintain systems,

processes, controls designed to ensure compliance with

all relevant laws and regulations.

The asset management business and the U.S.

professionals who provide investment management

services to ERISA and IRA clients were not in any way

involved in the tax settlement or the conduct

underlying the tax settlement.

Emidio is now going to detail how strong our

compliance culture is at our CS QPAMs. As he said,

he's the managing director. He's been with us for 15

years, and he's been a compliance professional in that

business the entire length of his career. Emidio.

MR. MORIZIO: Thank you, Neil.

So, as the head of compliance for Credit

Suisse Asset Management, I take great pride in the

culture of compliance that senior business and legal

compliance personnel have instituted in the asset

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management business. Now I said it earlier, but I 

think it's important enough to reiterate.

At Credit Suisse we have developed a 

comprehensive compliance framework, and we work

closely with the business in order to understand the

current new business initiatives and to provide dayto-day advisory support; assist in identifying

potential conflicts, risks and control gaps;

performing appropriate monitoring, testing, and

surveillance which I know was something that, you

know, was of much concern to the DOL to ensure that if

there are gaps that they are being adequately

addressed; to ensure compliance with all laws and

Credit Suisse policies; monitor for regulatory

developments; and lastly, develop and implement

comprehensive compliance training, which I also know

is very important to you.

The asset management business in the U.S. is

separated physically, informationally and

organizationally from securities trading and sales and

other investment banking activities and from Credit

Suisse in Switzerland. You know, our corporate parent

is not involved in any investment decision making by

the QPAMs. These determinations are made by asset

management professionals who serve these ERISA plans.

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We know mistakes happen. You know, no

organization is perfect, but we require that all

errors in guidelines be escalated to compliance, risk

and asset management senior management, you know, as

soon as possible. When these errors are identified,

we fix them promptly. Corrective actions are always

taken in the best interest of clients and with

applicable law.

We use automated systems with pre-trade

compliance functionality where possible to reasonably

ensure that investment guidelines and regulatory

restrictions are complied with on a trade-by-trade

basis.

We do not trade with our affiliates for

ERISA and IRA portfolios, and to the extent our

systems can be designed to identify these accounts and

monitor these limitations automatically, we have done

so. Where that cannot be done we monitor manually.

The legal and compliance team of the GC division is an

independent control function covering the Credit

Suisse asset management organization. We have over 20

dedicated professionals providing legal and compliance

coverage support to the asset management business in

the U.S.

We are supported by other groups within the

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general counsel division which report to Neil which

are responsible for a number of different functions,

some of them being anti-money laundering rules,

sanctions, client identification, position limit

monitoring, watch and restrictive monitoring. We also

monitor for rules that apply to gifts and

entertainment, which I mentioned earlier; for standard

anti-corruption rules like the Foreign Corrupt

Practices Act. We are responsible for the review and

maintenance of registrations, associated regulatory

filings, as well as for enforcing and interpreting the

personal trading policy.

Compliance also performs risk-based testing.

This would include targeted reviews of businesses or

ad hoc unscheduled reviews where we think there might

be a potential control gap to ensure compliance with

firm policies and procedures.

The legal and compliance teams are the main

contact with regulators to address inquiries and

examinations. The activities I just described help to

ensure that we satisfy all legal and regulatory

compliance requirements and also to properly identify,

assess, mitigate potential conflicts of interest, and

ensure our clients are being treated equitably and

fairly. I cannot emphasize enough that in the U.S. we

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have and will continue to maintain a culture of

compliance. That is what the head of our asset

management business expects, that is what our general

counsel expects, that is what we expect of ourselves,

and this is what our clients expect of us.

I hope my presentation this afternoon and my

additional more detailed written statement will help

the Department better understand how we at Credit

Suisse Asset Management run this business in

accordance with all applicable laws and regulations

and with pride and integrity. Our strong track record

with regulators and clients takes hard work, I can

assure you of that, and we will diligently apply

ourselves to meet every expectation under the interim

and final rules. Neil?

MR. RADEY: I have just a few more things.

You're going to hear shortly from the independent

auditor, so we've heard a little bit about the

independent auditor already today. Just a couple

responses already. There was a question about

providing the contract. We've agreed, since the

question came up, to provide the contract to you, so

that is something that we will be doing, but just a 

few more points on them.

They have a track record of acting as an

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independent auditor. This is not going to be a tickthe-box audit. This is a very serious audit. The

compliance program is not a tick-the-box program. It

is a serious substantive program and that's what I 

suspect they will find, and we welcome you and your

examiners in too and we'll be completely forthcoming

and transparent with you, with the auditor, and we

will also -- we'll give you anything you want, and we

have other regulators on site. We'd be happy to have

you there for, you know, as long as you want, quite

frankly. We'll give you whatever information you

want.

You know, one small point, the Fried Frank

point has come up. We checked over lunchtime.

Apparently on their list of clients we're somewhere

like 198, so we are not a significant client to them.

We don't use them very much. Our thought here was to

really get experts, experts who had ERISA expertise,

bring the benefit of what they've seen at other firms

and bring that to bear for the benefit of the plans

and the participants in those plans who we manage. So

that was really the thinking behind the Fried Frank

choice.

MR. MORIZIO: If I can interject for one

second.

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MR. RADEY: Sure.

MR. MORIZIO: We intentionally did not use a 

law firm we typically use in asset management. We

have not engaged Fried Frank for any, you know,

typical advisory support or activities, and so we

intentionally wanted to use a law firm we do not

typically use, where we did not have a regular

relationship with because we wanted that independence

and we wanted a fresh set of eyes to look at our ERISA

compliance program to ensure that we have not

overlooked anything.

Sorry, Neil.

MR. RADEY: That's fine. And, you know,

there are a number of other points that were made

throughout the presentation. I'm not going to

reiterate those but happy to respond. I would say a 

question of the tone at the top. You know, for

probably -- I've been at the firm for over 20 years.

I would say the tone at the top has been a very

significant part of our message for probably 15 of

those years. Really it's permeated the firm.

You know, you know that you've tailored an

exemption to address this kind of conduct before. We

think that the last 19 or 20 times that you've done

it, plus all the additional conditions that you've

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added to our proposed exemption, you know, should be

enough to give participants and plans the adequate

protection that they need. Again, any additional

conditions we're happy to talk to you about, you know,

how we can make those work, how they can be audited,

what are the substantive benefits that those could

achieve because I think what we really are here is

we're looking for substance and we're happy to come up

with any good substantive ideas here.

You know, I guess the last topic I do want

to say is, and, Madam Chairman, you addressed this a 

little bit. You know, there's not a back and forth

between the witnesses, but I must say that a lot of

what I've heard today, you know, some of it is very

old. Some of it is unsubstantiated and obviously

there's a lot that applies to the industry and other

financial institutions.

So I guess when we all leave the room and

you step back and, you know, take it all in really

think about, you know, what is the legal standard,

what is Credit Suisse, what is Credit Suisse Asset

Management, what are these conditions, and I guess to

me, you know, what's going on in the rest of the

industry, I'm actually quite proud of what we've done

in the U.S., and I do think that as you get to know us

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and the auditor gets to know us and your examiners get

to know us, I think that you'll walk away with a very

different impression.

There's one or two other things I need to

say. Some commenters have alleged that senior

management at Credit Suisse knew of the active

assistance to U.S. customers evading taxes described

in the plea agreement. These are claims that are

unsubstantiated. Indeed, it was an independent

investigation. It was conducted by external counsel,

but it concluded that senior management was not aware

of that misconduct.

I also want to point out that during the

financial crisis our firm has played a very

constructive role. We worked with the government to

study the economy, worked through necessary Dodd-Frank

improvements to the system, and designed clearing

functions and other reforms that make sure that these

industry issues do not reoccur.

Credit Suisse did not take any taxpayer

money, and some of my colleagues originated and have 

been thought leaders and worked tirelessly for the

last six years to address the too big to fail issue;

really come up with a concept called "bail-in" which

really will move the risk of some of these large

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financial institutions away from the taxpayer to debt

holders.

We've not been implicated in LIBOR rate

setting, foreign exchange or robo-signing matters, and

this, I think, demonstrates a careful adherence to the

law and some of our good business practices.

So I guess with that I want to say one last

thing, which is, you know, we are an organization

globally and in the U.S. We're made up of, you know,

thousands of employees, and many of our employees give

back to their communities. They do so financially but

also with hours and hours of volunteer time, and you

will hear from some of the grantees that the

foundation, our foundation supports.

But volunteerism is really the way that we

try to do this. It's in our DNA. Some of the

organizations we support are in the fields of

education, nonprofit legal services, mentoring. We

don't ask for recognition for what we do here, but we

do think that, you know, to help understand who we are

a little bit more. There has been a lot of criticism

of the institution, but there is very much a side of

the institution that's composed of people giving back

every day, dedicated to their jobs, pride in their

institution, and that's who I think Emidio and myself

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and the other CS witnesses you have seen earlier today

are representing.

Again, I want to thank you for your time. I 

want to thank you for the process that you've

conducted, and I really want to thank you for your

continued thoughtfulness as you go through all that

you've heard today. So thanks very much for having

us.

MS. BORZI: Yes, I have a question. So, in

my immediate prior life, my life with the Department

of Labor, among the many things that I did is I 

developed and ran a corporate compliance graduate

certificate program in the School of Public Health at

GW. So I'm extremely committed and concerned about

the compliance culture, and one of the things I 

started my class with was something you actually

alluded to and other witnesses have alluded to, which

is this notion of it starts at the top. If the top of

an organization does not overtly project that

compliance is a core value of the company, it's not

going to trickle down.

And so, as I listened to your description of

the corporate compliance activities and the commitment

that you have to that and I juxtapose that against

other testimony that we've heard and certainly what

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I've read in the newspapers about what appears to me,

Phyllis Borzi, citizen, taxpayer, not assistant

secretary, but what appears to me as a lack of

commitment to a compliance mentality, I can't help but

wonder how you exist, because that's what you would

like us to take away from this, as an oasis of ethical

compliance adherence in a swamp of a culture clearly

from the top down that doesn't appear to have those

same values. So can you help me out?

MR. RADEY: Yeah, yeah. I'm sure I would

not call it a swamp, but, you know, and I guess I'm

also limited because, as I think you know, we've

settled the matter with the DOJ, so we can't get into

that.

MS. BORZI: Right. All I'm concerned about

is why we should assume that you are as committed to

that as some of the other parts of the business,

including, as I said before, the mothership doesn't

appear to be.

MR. RADEY: Yeah. Well, even some of the

things at the mothership are really historical, and I 

think one of the things, and I think this is a good

example, is in 2008 one of the witnesses this morning

talked a little bit about the UBS matter and the UBS

clients leaving UBS, and I think one of the first

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things that we did, and we did this in Switzerland in

2008, was we said we are not going to take any new

accounts from UBS.

Now you might say that, well, 2008 is a 

little late, but I think that that is indicative of

the way that we started to address this issue very

early, well before there was any, you know, CS matter,

and this was, again, if you turn your clock back to

2008, that was also the time that, you know, Lehman

was filing for bankruptcy. There were a myriad of

different things going on in the world, in the

financial industry, and at that particular time we

recognized these -- you know, there is going to be a 

problem here. We are not perpetuating this problem.

We are cutting it off then, and here we are, you know,

seven years later and we're still talking about it a 

little bit.

But I think that that is the culture. And

when I talk about a legal and compliance department of

400 people here today, you know, I joined the firm, as

I said, about 20 years ago. The department at that

time was probably about 27 or 30 people, so what we --

MS. BORZI: You service all three?

MR. RADEY: Well, no. For the QPAM business

you'd have to say how big the QPAM business was, you

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know, historically.

MR. MORIZIO: Well, you know, the business

has changed over the years since I was associated --

MR. RADEY: Yes.

MR. MORIZIO: -- with the organization, so,

you know, we've divested of certain businesses and the

like.

MS. BORZI: Right.

MR. MORIZIO: But I think in terms of the

level of resources in asset management that we have

dedicated to, you know, legal compliance to the asset

management business, I think it's in line with what I 

would expect you would see at a typical asset

management organization.

But like I said earlier, we have a 

substantial amount of resources behind it in the core

legal compliance team who are providing additional

resources to us and to our clients, being, you know,

watch and restrict illicit monitoring, gifts and

entertainment, you know, FCPA, things like that. So

we have a core team which services the business, you

know, very carefully, but we also have other support

that we rely upon to ensure that, you know, we were

covering all aspects of compliance.

MR. RADEY: And I think what you've also

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seen over the years is, you know, if you again go back

in time in the U.S., you know, starting with the

insider trading cases in the mid '80s, mid to late

'80s, what you've really seen since then is in the

U.S. a very, very quick development of very

sophisticated compliance and regulatory regimes. I 

don't think that those have been mimicked or quite

developed at the same pace in other parts of the

world, but I think that what we're seeing globally,

regulators learning very, very quickly from other

regulators, business practices in one jurisdiction

being adopted and compliance practices being adopted

that are effective in one jurisdiction being exported.

I think on that particular point Emidio has

really been in the forefront of developing those

practices in the U.S. for the QPAMs predominantly,

which is, I think, your question, but then also

exporting them to other areas of our bank globally.

MS. BORZI: Of just asset management or

beyond?

MR. RADEY: I would say beyond, yes, very

much beyond.

MR. MORIZIO: I've helped out on other

projects where Neil has asked me to help out, you

know, to help and just, you know, bring best practice

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where we can to addressing, you know, control gaps

where we think we can, you know, improve things. So,

while historically my focus has been on asset

management, you know, I'll always lend a helping hand

in other parts of the organization where I think I can

add value.

MS. BORZI: Okay. And then I just want to

sort of tick off some other questions because I've got

a bunch of loose ends.

MR. RADEY: Sure.

MS. BORZI: You don't necessarily have to

answer all these questions, but I'd like for the

record my questions about how you selected the firms

to do your training --

MR. RADEY: Yes.

MS. BORZI: -- and the audit.

MR. RADEY: Okay.

MS. BORZI: You kept talking about we

selected Fried Frank --

MR. RADEY: Sure.

MS. BORZI: -- because they have done no

other business with us. That really wasn't an answer.

MR. RADEY: Okay.

MS. BORZI: That was part of my question.

MR. RADEY: Sure.

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MS. BORZI: But really what I wanted to know

is have they done any business at any point for the

bigger -- anybody in the bigger organization --

MR. RADEY: Yeah.

MS. BORZI: -- because obviously, as Mr.

Nader suggested --

MR. RADEY: Sure.

MS. BORZI: -- and the point of my question

this morning was to make sure that we weren't just --

you weren't thinking about complying for these -- with

these conditions by having a same-old, same-old --

MR. RADEY: No.

MS. BORZI: -- who has a prior relationship

to the bank and, of course, I understand having --

MR. RADEY: Sure.

MS. BORZI: -- been at a law firm that there

is always an interest in having a future relationship

and that that --

MR. RADEY: Yeah.

MS. BORZI: -- sometimes might affect your

ability.

MR. RADEY: Yeah, sure, go ahead.

MS. BORZI: So tell me -- we want to know

about how you selected the firm to do the training and

the other big component of the additional conditions

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is the audit, so what was your selection process like

for that? And again, the same question, to what

extent were the service providers you selected, have

they had any prior relationship with Credit Suisse,

the company as a whole, and its affiliates?

Thank you for telling us that you are going

to give us copies of the contract. I'd like to see

one for both of these service providers because I want

to know what exactly the scope and nature of their

duties is, what restrictions there might be, certainly

what they're being paid. And I think that's -- I know

we'll have some other questions.

MR. RADEY: Okay. That's fine.

MS. BORZI: But I just wanted to let you

know those are the kinds of things that we are

interested in.

MR. MORIZIO: Sure, sure. I can speak to

the engagement of the law firm.

MS. BORZI: Okay.

MR. MORIZIO: With respect to Evercore,

unfortunately I was not directly involved in that.

MS. BORZI: So did I miss the one person I 

didn't ask the question to?

MR. RADEY: Well, actually, Evercore is

going to be coming shortly. You can ask them. They

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won't know why we picked them, but --

MR. MORIZIO: Yes.

MR. RADEY: -- we'll tell you a little bit

about that.

MR. MORIZIO: Yes.

MR. RADEY: Fried Frank, yeah.

MR. MORIZIO: So, with respect to Fried

Frank, so we interviewed three law firms that have

very strong ERISA practice groups, and we

intentionally went to law firms that we typically

don't work with in asset management because, like I 

said earlier, we wanted to get a fresh set of eyes.

So while we have very strong and competent in-house

ERISA lawyers, we wanted to go to people who we

typically don't go to with questions on a routine

basis because we wanted, again, to have somebody come

in and do a little tire kicking and make sure we're

not overlooking anything.

MS. BORZI: So did somebody give you advice

on how to select these three firms?

MR. MORIZIO: No, I think, you know, we're

very competent in terms of choosing, you know, ERISA

counsel, like we engage law firms for many different

projects.

MS. BORZI: Sure.

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MR. MORIZIO: And, you know, we --

MS. BORZI: So it was all done internally?

MR. MORIZIO: All done internally. So we

had, you know, three law firms come in. They

presented on their capabilities. We met after, you

know, internally after we interviewed the three law

firms. We had concluded that, you know, Fried Frank

had done an excellent job. We felt very, you know,

confident in their capabilities, and at that point I 

know we had done no business whatsoever with Fried

Frank on the asset management space because I'm very

familiar with what we do.

MS. BORZI: Did you ask them if they

represented other clients who had been involved in

other things, some of these issues?

MR. MORIZIO: I believe that question may

have come up, but I can't say with certainty.

MS. BORZI: Okay.

MR. MORIZIO: But we do know they have a 

very strong practice group in that area, and that's

really what we were concerned about mostly. And from

that we determined that, you know, they were a great

choice. They had a very strong asset management

practice group. They had very strong ERISA counsel,

so that was another big consideration of ours. And we

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just learned, you know, a short while ago that Fried

Frank has done very little business with Credit Suisse

as a whole. As Neil said, I think we are number 198

in terms of their total billing.

MS. BORZI: Yes, you said "we". I wrote

that down because I wasn't sure who "we" meant.

MR. MORIZIO: Yes, Credit Suisse as a whole.

MR. RADEY: Credit Suisse, the big Credit

Suisse.

MR. MORIZIO: The big Credit Suisse. So, I 

mean, the amount of revenue which Fried Frank attains

from Credit Suisse is negligible, and when I mean

negligible, it's less than one-half of one percent of

their total revenue.

MR. RADEY: Just maybe a few comments on how

we selected the auditor. You know, obviously it was

very similar in terms of the kinds of expertise that

we wanted. We really wanted somebody who was well

versed in ERISA. We considered, you know, some of the

consulting firms associated with the Big Four, but

what we really wanted was that specific ERISA

background. We also wanted somebody who understood

from their own perspective the fiduciary business. So

Evercore Trust suits that bill as well.

And then we looked at, as Emidio said, what

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kinds of similar engagements have they done. You

know, do they have really the expertise here? And we

are aware that they have done other engagements that

are much larger, more sophisticated, more complicated,

so that gave us also some comfort that they would be

able to handle ours. But I think you could talk to

them a little bit more about their capabilities, but

that's where we ended up, yeah.

MR. HAUSER: You did a very nice job of

anticipating also my questions.

MR. RADEY: Okay.

MR. HAUSER: So maybe just a couple more

document requests, I'm afraid.

MR. RADEY: Okay.

MR. HAUSER: It would be helpful to get

whatever compliance manuals, compliance procedures you

now have for the fiduciaries --

MR. RADEY: Okay.

MR. HAUSER: -- as updated. Presumably you

--

MS. BORZI: All the training materials.

MR. HAUSER: Presumably you reflect the

terms of the exemption.

MR. RADEY: Sure, absolutely.

MR. HAUSER: You know, the conditions. I 

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know you've given us material like that in the past,

but if we could just be sure we have the current --

MR. RADEY: Most recent, sure.

MR. HAUSER: -- versions. Similarly, I'd

appreciate it if you could provide us with a syllabus,

materials, whatever you can on the training program.

MR. RADEY: Uh-huh.

MR. HAUSER: I think that would be helpful

as well. And probably this could wait for a more

precise formulation, but a number of the witnesses

throughout the day have faulted I think both you and

us really for not having received necessarily precise

answers to some of the more numerical questions about

the number --

MR. RADEY: Okay.

MR. HAUSER: -- of participants, plans --

MR. RADEY: Yeah.

MR. HAUSER: -- the size of assets.

Certainly, to the extent we can get precision, we

should try to do that, I think.

MR. MORIZIO: Yeah. But for today's

discussion, so a good approximation is $2 billion in

institutional ERISA money and approximately 1 million

plan participants behind that.

MR. RADEY: And we'll supplement that

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though.

MR. HAUSER: Okay. Thank you.

MR. RADEY: Sure thing. Thank you.

MR. MORIZIO: Thank you.

MR. HAUSER: Alan Lebowitz and William Ryan.

MR. LEBOWITZ: Good afternoon. I just need

a second to get oriented here being on this side of

the table.

Good afternoon, ladies and gentlemen. I'm

Alan Lebowitz, Senior Advisor at Evercore Trust. With

me here today on my left is William Ryan, Managing

Director and Chief Fiduciary Officer of our firm.We

have submitted a longer statement for the record, so

I'll just take a few minutes to summarize it at this

point and then we're obviously open to try to answer

any questions that you might have.

We appreciate the opportunity to testify

this afternoon in our capacity as the designated

independent auditor required by Section I(i)(1) of the

proposed exemption involving Credit Suisse AG. We

recognize the important role played by the independent

auditor in the protective scheme developed by the

Department in the proposed exemption. Our objective

here today is to provide you with information about

our firm, with a specific emphasis on our history,

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qualifications, and independence. In addition, we'll

discuss our proposed approach to this engagement,

which hopefully you will find helpful as you consider

the final disposition of the proposed exemption.

Evercore Trust is a wholly-owned, indirect

subsidiary of Evercore Partners, Incorporated. It's a 

national trust bank chartered and regulated by the

Office of the Comptroller of the Currency. Evercore

Trust's primary expertise is in providing specialized

investment management, independent fiduciary and

trustee services to employee benefit plans. In

addition, Evercore Trust provides personal trustee,

executor and custody services for clients of Evercore

Wealth Management, LLC, an affiliated wealth

management firm.

Our firm was founded in 1987 as Special

Fiduciary Services, a part of U.S. Trust Corporation,

which was acquired by Bank of America in 2007.

Evercore Trust was established in connection with

Evercore's 2009 acquisition of the Special Fiduciary

Services business from Bank of America.

With over $37.9 billion in assets under

management and administration as of December 31, 2014,

Evercore Trust provides discretionary fiduciary

services for qualified and nonqualified employee

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benefit plans sponsored by corporations and other

institutions. Client plans include defined

contribution plans, defined benefit pension plans,

voluntary employees, beneficiary associations,

employee stock ownership plans, and rabbi trusts.

Our team has served as the independent

fiduciary responsible for monitoring compliance with

the conditions of many complex prohibited transaction

exemptions granted by the Department to large

financial institutions and Fortune 500 corporations.

These prohibited transaction exemptions have addressed

issues arising out of the consolidation of financial

institutions, in-kind contributions, in-kind

redemptions, captive reinsurance arrangements, the

sale of assets to plans, rights, offerings,

demutalizations, the provision of services to plans,

and other matters.

As a nationally chartered trust bank,

Evercore Trust operates within a robust compliance

infrastructure. Evercore Trust's processes are

subject to periodic review by both our own internal

audit group and the OCC. In addition, Evercore Trust

has elected to undergo regular SSAE 16 reviews of its

trust and custodial services related to its fiduciary

engagements.

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Evercore Trust maintains internal committees

responsible for fiduciary decisionmaking and risk

management. This oversight structure supports

Evercore Trust's compliance with its policies and

procedures which are designed to facilitate the

prudent execution of the firm's responsibilities.

Evercore Trust employs approximately 50

professionals, including in-house ERISA legal counsel,

financial analysts, relationship managers, and support

personnel who work from offices in New York, Los

Angeles, and Washington. Evercore Trust's senior

management team averages more than 25 years of

industry experience.

The proposed exemption requires the

retention of an independent auditor "who has been

prudently selected and who has the appropriate

technical training and proficiency with ERISA to

evaluate the adequacy of and compliance with the

policies and training developed by the Credit Suisse

affiliated QPAMs."

Of particular relevance to the proposed

exemption, our team has developed, reviewed,

implemented, and monitored operational compliance with

policies and procedures and associated training

programs for a number of financial institutions

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through our experience with comparable prohibited

transaction exemptions and prior professional

experiences. Summaries of representative prohibited

transaction exemptions where Evercore Trust served as

independent fiduciary, independent monitor, or in a 

similar capacity are included as Exhibit B of our

written submission.

Evercore Trust is independent of and

unrelated to Credit Suisse AG and its affiliates.

Evercore Trust is to be paid a fixed fee to serve as

independent auditor. Evercore was previously retained

by an affiliate of Credit Suisse AG in 2009 to serve

as an independent fiduciary responsible for the

allocation of settlement proceeds between affiliated

parties. We were paid a fee representing less than a 

quarter of one percent of its annual revenue for this

assignment, our annual revenue for this assignment.

We currently have no business relationships with

Credit Suisse AG or its affiliates other than in

connection with the temporary and potentially proposed

exemption.

Prior to accepting any new business Evercore

Trust requests review and approval from Evercore's

"control room", an internal group staffed by

Evercore's legal and compliance personnel to identify

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potential conflicts of interest across Evercore's

platform. This process helps to ensure Evercore

Trust's independence and undivided loyalty for

fiduciary mandates.

There were no potential conflicts with

Credit Suisse AG or any of its affiliates identified

during the on-boarding process which would prevent

Evercore from serving as independent auditor.

The proposed exemption requires that the

independent auditor determine whether each Credit

Suisse affiliated QPAM has developed, implemented,

maintained, and followed policies in accordance with

the conditions of the proposed exemption and related

training. In making this determination, the

independent auditor is required to test each Credit

Suisse affiliated QPAM's operational compliance with

these policies and training and to issue written

reports describing the steps performed during its

examination, specific determinations regarding the

adequacy of these policies and training programs, and

recommendations to strengthen the policies and

training, and any instances of noncompliance with

these policies and training.

If the proposed exemption is granted,

Evercore will conduct a rigorous due diligence process

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to ascertain whether each Credit Suisse affiliated

QPAM is in compliance with the conditions of the

proposed exemption that are subject to review by the

independent auditor. We will initially gather and

review information relevant to the proposed exemption,

including the policies background of the Credit Suisse

affiliated QPAMs and their clients subject to ERISA,

account documentation, transactional data, compliance

reporting, and training materials, and would then

conduct on-site visits to interview relevant personnel

and learn more about the specific business practices

and compliance activities for each Credit Suisse

affiliated QPAM. A detailed audit plan will be

developed for each Credit Suisse affiliated QPAM which

will include appropriate testing protocols.

The testing protocols will be structured and

implemented to ensure the Credit Suisse affiliated

QPAMs' operational compliance with the policies and

training as set forth in the audit plan are complied

with. In particular, Evercore Trust will run tests to

ensure that each QPAM is in full compliance with the

requirements of the exemption.

Evercore will conduct its testing based on a 

representative sample of transactions conducted by

each Credit Suisse affiliated QPAM during the audit

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period. Any instances of noncompliance will be

investigated further, remediated, and fully

documented. The due diligence process will culminate

in the preparation of a comprehensive audit report

describing the process and Evercore Trust's specific

findings.

Again, we recognize that the independent

auditor requirement is an important safeguard for the

proposed exemption. We believe that we have the

requisite experience and independence to serve in this

role. We're prepared to conduct a thorough and

objective evaluation of each Credit Suisse affiliated

QPAM's operational compliance with the requirements of

the exemption.

Again, we appreciate the opportunity to

appear before you today and we'll try our best to

answer any questions that you may have. Thank you.

MR. HAUSER: So we're going to get a copy of

your contract.

MR. LEBOWITZ: Uh-huh.

MR. HAUSER: I think it would also be

helpful as you proceed if we could get copies of your

audit plans.

MR. LEBOWITZ: Sure.

MR. HAUSER: I guess a question I have is

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what assurances have you received about having

unfettered access to, you know, the employees? If you

detect an instance of noncompliance, what will be your

ability to talk directly to the people involved? What

will be your access to the documents? You know, are

there any restrictions on access to documents or

witnesses that might interfere with your ability to do

the work?

MR. RYAN: And I can categorically say we've

been given assurances that are both in the

documentation that you will receive with respect to

our engagement as well as independently from Emidio,

the compliance staff, the chief ERISA counsel of

Credit Suisse, and others that we will have unfettered

access to personnel as well as information.

MR. HAUSER: You know, one aspect of the

audit requirements that maybe is a little different

than in other exemptions that have similar things is

that there is an audit requirement with respect not

just to the specifics of various prohibited

transaction rules but also more general --

MR. RYAN: ERISA compliance.

MR. HAUSER: Yes, sort of obligation to be

looking at broader ERISA compliance, you know,

prudence, loyalty, as well as the accuracy of

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representations to various regulators. What thought

have you given to how you would go about structuring

such an audit to work?

MR. LEBOWITZ: Well, I think the process

would largely be as described in the testimony. You

first start by understanding the organization, its

internal processes, its existing compliance structure,

the transaction of data, and interviews with relevant

personnel within each of the QPAM organizations.

And once we have a comprehensive

understanding of the structure and operations of the

organization, we would then put together a formal

testing program, a formal compliance program based on

what we've learned.

MR. RYAN: So if I'm trying to drill down

maybe to one level slightly below with this. Tim, I 

take your point with respect to trying to test for

fiduciary compliance with respect to 404 itself and

its standards. I think that's indicated by a number

of things, and that's been my own experience as well

as working with Evercore Trust.

I'd say, number one, you would be looking

clearly at the documentation that you have with

respect to the particular engagement's

acknowledgements of fiduciary status. Secondly, you'd

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be looking at the aspects of training and/or

professional experience with respect to the portfolio

managers, their familiarity with the ERISA rules, and

you can -- truthfully I've had situations in the past

which I would expect as part of the protocol where we

were asking not only about their training, background,

experience, but their specific familiarity with the

ERISA requirements, the restrictions of what QPAM, for

example, applies to and doesn't apply to. The

situation that it wouldn't apply, for example, to SEC

lending, you know, asset-backed securitizations and

the like.

I think with respect to -- and transactional

testing can vary depending on the type of transaction

we are talking about. The exemption I think has some

very focused and very specific requirements with

respect to information barriers and reporting, and we

have done very similar work with that in our Barclay's

exemption which the Department is aware of in terms of

checking down on levels, and that can drill down in

protocols, for example, not just saying whether or

not -- to basically check email records, for example,

as the transactions in case.

But when I think you're talking about the

broader issues about ERISA fiduciary compliance, the

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culture of doing the right thing for the client, part

of this I think is indicated by what you see and what

you don't see. Do you see a robust structure where

mistakes are elevated quickly, trading errors, trading

with affiliates? Is there a process and a clearly

documented process that not only does compliance

understand but the business people involved with the

transactions understand that when there's a mistake

the first reaction is not to hide it. The first

reaction is to fix it and elevate the issues.

So I think part of that -- those I would say

are more qualitative judgments at some point, but I 

think they're indicated by the quantitative

information that you have from the policies, the

information that the personnel themselves actually

have with respect to not only the transactions and the

transaction types they're engaged in but also their

general fiduciary responsibilities.

I think it's safe to say that, and I know

this from having to deal with Credit Suisse in the

past, there is always, from my personal experience in

dealing with especially the lawyers at Credit Suisse

because that was my one direction, there was always a 

clear understanding that the firm's commitment was in

fact to follow the rules of ERISA even when they're

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not exactly transparent in some of the prohibited

transactions side.

I don't expect that we will see anything

differently, but as someone once said, you trust, but

you verify, and that's, I think, the way we're

approaching this.

MR. HAUSER: Are there -- let

me -- trust but verify. Have you looked at the --

this morning, I don't think you were in the audience

this morning, but, you know, I noted that last night I 

read through the stipulated facts in the criminal

proceeding involving Credit Suisse AG, and, you know,

there's a section in that stipulation that, you know,

has as its header -- let me see if I can now put my

hands on it, but essentially that heading is -- here

we go. "Credit Suisse's Ineffectual Policies,

Training, and Audits." And when you go through it,

the thrust of it, and this isn't the entities you're

auditing, it's a different set of entities, but what

comes out of this is that they had internal

procedures. Maybe on their face the procedures seemed

okay. But in practice they weren't being followed at

least with respect to these violations.

MR. RYAN: Right.

MR. HAUSER: And more than that, when the

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auditors went to look, you know, they didn't get

accurate production back. You know, documents were

changed to avoid references to travel to the United

States. There was some destruction of emails. You

know, there was the appearance of a working policy of

an audit system, but there wasn't really the reality

of that, and what's alarming from the government's

perspective obviously is we don't -- and from an

auditor's perspective I would think is we don't --

that's what we have to rely on to some degree. It's

what's in the documents, you know, what are the people

telling us.

And so I understand your previous

experience, but I just wondered -- I mean, I think you

should read this. I just wondered if you haven't

already, but I think I'd be very interested in hearing

from you how you think you can guard against that sort

of thing.

MR. RYAN: I have read them but not as

recently as last night. I was, in fact, reading,

among other things, our testimony. I think as a 

background matter, and I think the Department noted

this in the exemption, the lack of a fact pattern

itself may be indicative. So, for example, if you're

dealing with email production, and I know that this

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has occurred in other areas, you look not only for

what has been produced but timing gaps, whether or not

there are, for example, wholesale or random types of

references that don't seem to apply. Again, that may

not be applicable directly with respect to what's

going on here, but there are ways to take a look at

the documents. There are ways to take a look at the

document production.

And to your point, Tim, part of what's being

done here that Fried Frank was retained to is actually

in some respects to pull together policies that are

there as far as I've seen. We've seen one draft of a 

compliance manual for one of the Credit Suisse

entities which is clearly pulling in material from

related manuals and related investment advisory

guidelines as we're dealing with some of the same

issues from a fiduciary perspective under the Advisors

Act, for example.

So I think the policies clearly are actually

getting more focused and more centralized and on some

levels easier to review and audit. I think with

respect to the transaction testing, and you've noted

this, as I've said, you look for what isn't there, and

I say this having worked at financial services

industries, and due to the best -- despite the best

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efforts mistakes happen. The question isn't whether

or not there are mistakes or errors, and if there are

none, that to me is a red flag. The question is how

people address them.

MR. HAUSER: Well, in following

transactions, would you expect to have a system of red

flags to --

MR. RYAN: I would expect -- yes, I would

expect that there is an elevation process which I 

think Emidio could speak to in more detail, but I'm

expecting to see, certainly in some of the oral

conversations that we had talked, an elevation process

for trade errors. Periodic review of investment

management engagements, looking for foot faults, do

you acknowledge ERISA fiduciary status, do you apply

ERISA fiduciary rules to governmental plans, for

example, or to ERISA plans uniformly, things along

those lines.

MR. HAUSER: Have you been through their

current set of compliance documents, policies and

procedures and the like?

MR. RYAN: No, we have not. Technically we

were actually engaged on Tuesday. So I really would

love to have told you that we were all through them at

this point, but we are not.

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I will say that we have seen no evidence

whatsoever that they are unwilling to provide any

information that we were requesting. To the point

with respect to transaction testing and looking at,

you know, affiliate -- and I do understand, I actually

was slightly taken aback that there were no related

brokerage transactions involving these accounts. That

to me is something I clearly want to understand

exactly how they're monitoring and how they're in fact

complying with that just on a regular basis because

even if it's permitted under an agency trade, if

you're promising something in your contract that

you're not doing, that's a red flag as well.

MR. HAUSER: But you have been through the

conditions in our exemption.

MR. RYAN: Yes.

MR. HAUSER: Are there any additional

conditions that you think we should add that would

help you better do your job?

MR. RYAN: I think in my own view, and Alan

should feel free to agree, disagree, I think the

Department has done a very good job of trying to put

real conditions on that you would not normally have in

any of the other exemptions dealing with criminal

status with a recognition of the fact it has to be

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administrable. So I think part of this is also served

by how the asset management business at Credit Suisse

is run and that the U.S. QPAMs are in fact the ones

doing the U.S. trading. Truthfully, that's one thing

that we would verify as part of an audit process.

But I do think as -- I think you've hit the

right balance, and we saw obviously the earlier --

there were obviously discussions about other

conditions and we heard some of them. From our

perspective, we have not seen a lot directly with

them. I don't think we are seeing anything that

automatically comes to mind that would further enhance

this. But part of our report and part of our audit

function would be to indicate that if we're seeing

systemic deficiencies or other issues that need to be

considered we will raise them.

MR. HAUSER: And again I would just, since

you weren't here this morning, I'll just repeat the

other point I made in connection with the audits this

morning. While the preamble to the exemption notes in

connection with administerability that there is no

requirement that the Department of Labor be taking a 

look at the compliance of the policies and procedures

or the monitoring that, you know, partly you are there

for --

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MR. RYAN: Right.

MR. HAUSER: -- nevertheless, I've all but

determined that we're going to have our investigators

in. We're going to be taking a look --

MR. RYAN: Absolutely.

MR. HAUSER: -- at this.

MR. RYAN: To be perfectly honest, I kind of

assumed that that's what you were going to do.

MR. HAUSER: It's very important to us given

the problems in the Credit Suisse AG case and given

sort of that these are central protections in the

exemption that this not be a check-the-box sort of

exercise or even as a cost saver.

MR. LEBOWITZ: That's clear in the proposed

exemption. I don't know that I have anything at this

point we would suggest that you add. There may well

be provisions that seem a little ambiguous to us or

difficult to figure out exactly what you're looking

for, and we would certainly be happy to talk with you

and your staff as we implement the audit plan or

design the audit plan and then implement it to make

sure that we're focusing on what you want us to.

MR. HAUSER: Well, if we move forward with

the exemption, all the better if we can clear up any

ambiguities before we publish the doc.

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MR. LEBOWITZ: Understood.

MR. HAUSER: So the sooner the better. As

you said, you have specifics in mind.

MR. RYAN: We'd be happy to provide them.

MS. BORZI: So a number of the prior

witnesses have expressed skepticism at the

representation that has been made that none of the

employees of the QPAMs were involved in any way in the

criminal behavior and at least one noted that while in

the exemption the representation appears to deal with

people who have directly benefitted from the criminal

behavior, there was a suggestion that we broaden that

criteria to also capture people who may have

indirectly benefitted from the criminal behavior who

are part of the QPAM operation. So is this part of

what you're going to be looking at, whether or not

that representation is accurate?

MR. RYAN: I can tell you that part of this

would be -- we would consider this as part of the

information barriers that we would be looking at, and

one of the sample protocols not only searches through

emails, not only phone logs, to the degree there are,

you have simple checking of peoples' access to various

floors where people -- I can tell you, especially in

many of these organizations with security protocols,

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people sign in, especially if they're -- and we want

to see if there are access issues with respect to that

on the various floors that the asset management unit

presumably apply.

I will say if the Department goes down the

road of direct and indirect benefit we would

definitely appreciate the Department's view on what is

meant by indirect.

MS. BORZI: Yes. I mean, I'm not expressing

an opinion.

MR. RYAN: Understood.

MS. BORZI: I just wanted to make sure that

I got that point out.

MR. RYAN: No, we appreciate that, but I 

think that is part of what we're seeing, among other

things, as part of the information barriers.

MS. BORZI: And so I guess the other obvious

question is at what point during your engagement if

you find issues or concerns, at what point would you

come to the Department about them, or would you

attempt to only deal with them internally?

MR. LEBOWITZ: Well, the --

MR. RYAN: The exemption.

MR. LEBOWITZ: -- exemption itself laid out

a framework for reporting and for communicating --

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MS. BORZI: Right.

MR. LEBOWITZ: -- with the QPAMs instances

of noncompliance. I think, as drafted, it would all

be wrapped up in the report, but there may well be

situations, I mean --

MS. BORZI: Well, that's specifically the

question. Are you going to wait until -- if you find

something of concern, would you wait until the report

or would you give us a heads-up before?

MR. LEBOWITZ: Well, I think from my

perspective the answer to that is it depends on what

we see and what Credit Suisse does with our finding

that there's been an instance of noncompliance or

there's a significant issue with the policies and the

training.

It seems like the exemption contemplates

that we find something, communicate it with Credit

Suisse, they fix it, then we report it, and including

what remedial steps that they've taken.

MS. BORZI: Right.

MR. LEBOWITZ: You know, in a routine --

MS. BORZI: But what I'm asking is what if

that isn't --

MR. LEBOWITZ: Well, then we would certainly

come to the Department if we felt that it was a matter

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that we were getting nowhere with Credit Suisse in

terms of getting the matter addressed appropriately.

MS. BORZI: Or cell blocking, if you were

experiencing that.

MR. RYAN: No, I would concur with that. I 

would say also to the degree obviously that there are

people on site. I'm expecting that there would be

some level of communication that would be going on on

a regular basis anyway.

MS. BORZI: I mean, I'm not making any

prejudgments about how this is going to play out.

MR. RYAN: No, understood. Understood. But

no, I think it's safe to say, Madam Secretary, that if

we were being stonewalled, if we were seeing that

there was incomplete information, if the parties

weren't cooperative, we would be raising red flags.

That again is sort of the way I view -- I don't expect

to see that based on the importance that I think

Credit Suisse is putting on this entire effort, but if

we do, we will in fact be having a vigorous discussion

with a number of parties.

MS. BORZI: Thank you.

MR. HAUSER: Thank you.

MR. RYAN: Well, thank you very much. We

appreciate the opportunity.

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MR. HAUSER: We're going to take a fiveminute break mainly just because I need to take a 

break. But then we will start back with George

Arnstein.

(Whereupon, a short recess was taken.)

MR. HAUSER: Is George Arnstein here?

MR. ARNSTEIN: Yes.

MR. HAUSER: Whenever you're ready.

MR. ARNSTEIN: Good afternoon. My name is

George Arnstein. I'm a U.S. citizen, and I object to

any extension of the temporary waiver grant to Credit

Suisse AG or the possible grant of a full waiver to

serve as qualified professional asset managers to

retirement plan clients.

I should add that my testimony is not going

to be about billions, not about millions, but about a 

personal experience of Credit Suisse failing to exert

its fiduciary responsibilities.

My testimony regards some 50,000 accounts of

pre-World War II assets entrusted to it. The exact

number is unknown but will be discussed below. And I 

can cite an illustrative case. I could even cite two,

but one will be enough.

Since my great aunt, Claire Adler, a native

born U.S. citizen, and I am the sole beneficiary of

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that account, along with my sister, and seeing our

claim was successful and was paid by the Foreign

Claims Settlement Commission, the question arises --

it was probably inadequate -- the question arises why

Credit Suisse AG failed in its fiduciary duties, and

the answer emerges from the findings of the so-called

Volcker Committee, the independent committee of

eminent persons, chaired by Mr. Volcker, who I think

qualifies as eminent, which determined that Swiss

banks unilaterally and routinely closed most such

accounts.

The International Claims Tribunal, which was

set up to implement the findings of the committee of

eminent persons, identified 53,880 probable or

possible accounts, most of which were opened by

Germans or residents of countries threatened by Nazi

imperialism who were in political or other jeopardy

under the Nazi Regime, such as my Great Aunt Claire, a 

native born U.S. citizen.

These accounts were closed unilaterally by

most Swiss banks, explicitly including Credit Suisse

AG, after service charges ate up the corpus or because

they were inactive, which under the circumstances

should be understandable and worthy of forbearance.

Claire Adler, for example, explicitly asked

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that no correspondence be sent to her German residence

and no disbursements be sent there precisely because

this could have led to confiscation, and presumably

this made her account inactive.

The Swiss banks at some point destroyed the

records except for minimal data which in our case were

adequate to validate the claims. The paid amounts

were calculated according to a formula because the

actual data had been destroyed and the actual amounts

thus could no longer be determined.

The final settlement with the Claims

Resolution Tribunal was signed, among others, by

Credit Suisse Group. For details you can see the

Claims Resolution Tribunal, the website is crt-ii.org.

In summary, Credit Suisse is documented as

having failed in its fiduciary duties and should be

found ineligible in the present proceeding. Thank you

for your courtesy. That's it.

MR. HAUSER: Thank you.

MS. BORZI: Thank you so much for your

testimony.

MR. HAUSER: Our next witness is James

Smalhout. I apologize if I got that name wrong.

MR. SMALHOUT: Pardon?

MR. HAUSER: I hope I got your name right.

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MR. SMALHOUT: You did. Thank you.

Well, thank you very much for including me

and for including George Arnstein. I'm going to talk

about the Holocaust, of course, but let me start at

the end, not the beginning.

We've heard from one of the lawyers for

Credit Suisse that they have established a culture of

accountability and that the abuses that we heard about

from previous witnesses all occurred many years ago.

Well, I'm not convinced about whether or not

they've established a culture of accountability.

There are too many things on the record that say

otherwise, and one of those blemishes involves the

1998 settlement for missing Holocaust era bank

accounts, and that was a settlement that even though

it occurred in 1998 continued to disburse funds as

recently as the last two years.

So we are not talking entirely about history

here, but history is a precedent, and I'm here because

my father's Dutch family sent a lot of money to

Switzerland in the late 1930s according to their

surviving housekeeper, and she even told her family

that they didn't need to worry about my grandparents

because my grandparents had sent so much money to

Switzerland.

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It's like that movie "The Sound of Music",

if you've seen it, but without the happy ending. My

grandparents fled The Netherlands trying to get to

safety in Switzerland, but the Nazis caught up with

them in France and that was the end for them. They

were dead at Auschwitz within a week.

We never found their bank accounts in

Switzerland, and Credit Suisse is now coming here for

an exemption like the one that UBS got a couple of

years ago, and neither of these banks is worthy of

these exemptions and can't meet the standards as an

ERISA fiduciary based on my family's experience.

They need to take a lot more responsibility

for depositors' losses before you give Credit Suisse

this exemption, and I think you actually should go so

far as to revoke the exemption you granted to UBS

unless they agree to further remediation. No employee

benefit plan relying on them is safe until they prove

that they are accountable to their customers, to

regulators, and also very importantly to our courts.

Your ERISA exemption process can be

constructive only, only if this Department applies

effective conditionality, and I'm going to argue that

part of that conditionality involves undoing some of

the damage that was done to depositor interests during

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the course of administering the previous 1998

settlement.

I summarized in a column for Barron's that

this whole problem started in 1934 when the Swiss

parliament paved the way for an enormous sham by

passing a law that imposed very severe penalties on

bankers who disclosed information about Swiss bank

accounts, secret Swiss bank accounts. After that law

was passed well-to-do Jews from all over Europe

terrified of Hitler poured huge fortunes into Swiss

banks, and Swiss bank secrecy law made it almost

impossible to trace those after World War II.

My father came here in 1935. His family

sent the money in the late '30s. He didn't know where

to begin in terms of finding these accounts, what bank

to go to, that sort of thing. Banks in large numbers

of cases just kept the money.

And so, in 1998, Credit Suisse and UBS

agreed to a $1.25 billion settlement. My family

received $7,250, but my grandparents' housekeeper said

through her sister, and they were very close and her

sister speaks excellent English, that they probably

sent about $85,000, the equivalent, in the late 1930s.

So here we are 70 years later and what do we get?

Seventy-two fifty out of the settlement. That

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settlement made significant payments not to us but to

other people in just 5 percent of all cases, and there

were about 114,000 claims filed. And as the presiding

judge wrote to me, we did not have $25 billion or more

to repay depositors. I share your frustration with

the amount of funds available for distribution.

Plaintiffs should have received a far greater sum.

Now a fiduciary responsible for bank

settlements is obligated to proceed quite like a 

fiduciary entrusted with pension assets, but

completely absent from Swiss treatment of Holocaust

accounts was the care, skill, prudence, and diligence

of ERISA's legendary prudent man. I'm quoting the

statute now, that "that prudent man needs to act in

like capacity in the conduct of an enterprise of like

character with like aims."

ERISA demands absolute loyalty and

faithfulness from fiduciaries to the interests of

those who entrust money to them. Yet the core ERISA

concept of exclusive purpose for the benefit of

customers seems to have been completely anathema to

these institutions.

The scale of this problem compares with the

Deepwater Horizon oil spill settlement. That was a 

$20 billion settlement. We get a billion and a 

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quarter.

Now exemption conditions that you published

in November require accurate and complete information

from Credit Suisse on statements submitted to the U.S.

Government, but bank conduct before Judge Korman

indicates that these conditions would not provide

adequate safeguards. As one settlement official put

it, the real culprits are the Swiss bankers who

destroyed every trace of 2 million Holocaust era

accounts and refused Korman's investigators adequate

access to surviving bank records. The judge and his

investigators were actually turned down by both banks

to get more of these records. So how can you be

confident that those two banks will cooperate if

there's a problem in the future?

Plans simply do not have the reasonable

assurance that Credit Suisse and UBS are going to be

reasonably forthcoming.

My request is this: If you grant the

waiver, insist that these banks finally repay

Holocaust survivors. It was a huge mistake in 1998 to

cap payments to claimants. The standards of evidence

were also terribly unfair to claimants. The

requirement was that some trace of bank records had to

be found in order to justify a substantial claim.

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And I see I've run out of time, but to

conclude, the U.S. Department of Labor should not

provide this exemption unless the bank agrees to

remediation along the lines that I've described in

documents I've submitted for the record, and you also

should revoke the previous exemption for UBS unless

they participate.

So that's essentially what I have to say,

and if you have any questions, I'd be happy to recite

the rest of my statement.

MS. BORZI: Well, I actually have a question

about were we to grant an exemption, were we to add

the condition that you're suggesting, how would we do

it? I mean, I think I heard, and please correct me if

I didn't hear correctly, that in this 1998 settlement

part of the problem was that the records of the

accounts were not available.

MR. SMALHOUT: Well, that's true. There are

two categories of records that weren't available.

Paul Volcker led a committee that hired an accounting

firm to audit all the Swiss banks. Not all of them

participated, but he determined that of I think about

6.6 million Holocaust-era accounts, all records

concerning 2.8 had been completely destroyed. So they

had an account total with no information whatsoever

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about the others.

For many accounts where there was some

trace, there was incomplete information. No

information about the account balance. So one way the

settlement shortchanged a lot of people like George

Arnstein's family, who got more substantial awards

than we got, was that they computed an average. So I 

know of some very wealthy families who had claims, who

controlled huge commercial enterprises, and so they

ended up with a quarter of a million dollars.

MS. BORZI: It was more a function of what

kind of records --

MR. SMALHOUT: Survived, but that's a big

part -- that may be the biggest part of the problem,

but the other part of the problem was there were

surviving records that were not made available to the

-- quite intentionally, that were not made available

to the settlement, and one settlement official

complained about this in writing in a letter to the

editor to Barron's Magazine in response to a column I 

wrote about the settlement.

And so it was a combination of both document

destruction, and by the way, one very embarrassing

episode attributable to UBS involving document

destruction led to the settlement. A night watchman

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walked into a shredding room and found a pile of

records involving Holocaust victims waiting to be

shredded, and he publicized this and became a pariah

around Zurich as a result, but that was one of the

factors that led to the settlement in the late 1990s.

So there is a long history and I have

included a very short bibliography of books that have

been written about this problem which at length

describe abuses by the banks in turning away Holocaust

survivors who appeared at bank branches in Switzerland

to claim their family's money and also involving

destruction of records over a course of decades.

MS. BORZI: Well, thank you. I just got

your submission this morning and so I'll make sure

that I go through it, so thank you so much.

MR. SMALHOUT: Thank you.

MR. HAUSER: David Garza.

MR. GARZA: Good afternoon.

MR. HAUSER: Good afternoon.

MR. GARZA: I've been known to clear out

rooms but usually not this dramatically.

(Laughter.)

MR. GARZA: My name is David Garza. I am

the Executive Director of the Henry Street Settlement

in New York City. To be clear, I'm here today to

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speak about our partnership with Credit Suisse and the

corporate character and behaviors that are reflected

in that partnership which is well over 20 years old.

I want to thank the Department of Labor for

the opportunity to testify in support of Credit

Suisse's QPAM exemption hearing, and in order to share

those facts, I've prepared a brief statement that, if

I may, I'll just read it directly so that I can be

concise.

Based on the lower east side of Manhattan,

Henry Street Settlement is a venerable institution

having served New Yorkers' needs since our founding in

1893. Our programs are offered in four areas --

health and wellness, education and employment, shelter

and transitional housing, and the arts -- to create a 

holistic network of support services that benefit

individuals and families living in poverty. Last year

we reached over 60,000 people across 17 program sites

for the 25 local public schools. Quite simply, our

work would not be possible without strong support from

a range of key partners and stakeholders, including

private foundations, government, corporations,

individuals, volunteers, and the public.

For close to three decades, Henry Street

Settlement has been the beneficiary of an

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extraordinary relationship with Credit Suisse. Most

importantly, Credit Suisse has become a model for

other corporate partners as a direct result of their

exemplary commitment, dedication, and sense of

responsibility reflected in the partnership at all

levels.

What makes our partnership with Credit

Suisse unique is the breadth, depth, and consistency

of their support at all levels. They have provided

governance in the form of a senior representative that

sat on our board for almost 15 years. They have

provided technical support and assistance, advising us

on key issues, and they've also helped us create an

outstanding volunteer program. In fact, their

volunteer support has made them the largest corporate

volunteer partner in the history of our organization.

Finally, they've been a consistent funder of our

volunteer programs and have provided ongoing critical

general operating support as well.

With Credit Suisse's support, we have been

able to expand our volunteer program significantly.

Over the past three years a total of 902 Credit Suisse

volunteers contributed over 3,700 hours of service.

In addition, this past fiscal year they added 310

children of Credit Suisse employees who provided

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additional support during Take Your Child to Work Day.

These volunteers have offered a broad range of

services to our agency, all carried out with detailed

planning, coordination, implementation, and thoughtful

measurement and reflection of the results.

Some of the highlights of the past year

include a summer carnival, job readiness workshops,

academic and recreational workshops for back to school

programs, a home for the holidays party where they've

come to decorate our homeless shelters, Take Your

Child to Work Day, and numerous gardening, painting,

construction projects which help to maintain our

facilities.

We've seen directly Credit Suisse's

volunteer involvement goes beyond the actual hours

they put in as the impact and benefit for our clients

has exponentially increased by their involvement.

Beyond providing their own staff as volunteers, Credit

Suisse has been the lead partner in helping us develop

our volunteer infrastructure for our large

multifaceted agency, sharing expertise, technical

assistance, and guidance. Their foundation has been

providing critical support to help our agency develop

a fully operational department. Volunteers play an

invaluable role at Henry Street each year, utilizing

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over 1,500 volunteers annually to support our program

staff, revitalize our facilities, and help us provide

direct services to those in need.

Thank you again for this opportunity to

testify. The clients served by Henry Street and the

entire organization has benefitted from our unique

longstanding relationship with Credit Suisse, and in

that regard they are a model corporate partner that we

value very greatly. So I'm pleased to be here and I'm

happy to answer any questions about information I've

shared or otherwise.

MR. HAUSER: I have no questions.

MS. BORZI: I don't either except to

acknowledge the great work that your organization

does. I'm very familiar with it.

MR. GARZA: Thank you very much. We really

appreciate that. Thank you.

MR. HAUSER: Thank you.

And our final witness of the day possibly,

Denise Durham Williams.

MS. WILLIAMS: I hope I'm not the closing.

(Laughter.)

MR. HAUSER: There are special obligations

that go with that.

(Laughter.)

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MS. WILLIAMS: First, I'd like to thank the

U.S. Department of Labor for the opportunity to

participate in today's hearing and share my

organization's experience and partnership with Credit

Suisse.

Good afternoon. I'm Denise Durham Williams,

the Executive Director of Student Sponsor Partners.

Student Sponsor Partners is a not-for-profit founded

in 1986 for the purpose of addressing the high school

dropout rate in New York City by providing low-income,

at-risk, average or below average students the

opportunity to attain a quality high school education

by attending parochial schools and live up to their

full potential.

We at Student Sponsor Partners believe that

a quality education offers our nation's youth the

necessity and a tool kit to maximize their potential,

pursue their dreams, and grow into responsible,

independent adults and future leaders. The necessity

of education is heightened for those at-risk children

who may not have the benefit of a stable family life,

adequate financial means, and the access to enriching

community organizations. Therefore, improving the

educational experience and increasing the high school

graduation rate is one of the most important

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challenges and opportunities that our nations face.

For 28 years, Student Sponsor Partners has

provided an innovative and successful formula to

improve the quality of education and improve New York

City's high school graduation rate. Our model is

fairly simple. We pair each student with a sponsor or

sponsors who offer financial tuition support and

provide a mentor who provide one-to-one mentoring for

a student during their four years in high school.

For over 18 years, Student Sponsor Partners

has worked closely with Credit Suisse and considered

them a key and committed and compassionate partner.

Given all of their support, Student Sponsor Partners'

model has been sustainable and it works.

We are proud of our success rate of

achieving a high school graduation of 85 percent

compared to New York City's graduation rate that can

range from anywhere from 50 to 65 percent depending on

the school district. Seven thousand at-risk high

school students have graduated from our program in New

York City, with a growing percentage of our high

school graduates being accepted in college. Ninety

percent of Student Sponsor Partners' class of 2014,

the graduating class of over 400, was accepted into

college. The majority of these schools were being

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four-year colleges and universities for low-income atrisk kids.

Through our partnership together with Credit

Suisse we have and continue to end the cycle of

poverty through education and empowering our at-risk,

low-income youth to reach their full potential. But

what's truly unique about Credit Suisse is their

commitment to the success of Student Sponsor Partners

fulfilling their mission.

The depth of our relationship is beyond the

financial support that tends to be associated with

corporate and community partnerships. The depth of

our relationship is grounded with time, sincerity,

genuine interest by the Credit Suisse employees and

senior management. They are truly dedicated to my

organization and really make a difference in the lives

of our students and offer key leadership support to

the organization and to my team. I'd like to take a 

few minutes to share with you examples of this sincere

support.

For over 18 years, 600 employees on their

own and volunteer have sponsored hundreds of my

students and provided $5.4 million in tuition support.

That's their personal money. Over 10 years Credit

Suisse employees have served as loyal and value-added

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mentors, again supporting Student Sponsor's unique

model. We actually consider this the secret source of

our success. Our records reflect that over 300

employees have served as mentors in New York

volunteering over 14,000 hours.

I speak from experience as a past national

director of CitiBank's community relations and leading

one of the largest financial services community

relations department. Those numbers of volunteerism

is very impressive.

Credit Suisse's employee support goes even

further when Student Sponsor Partners was selected as

Credit Suisse's holiday charity initiative in 2013.

During this initiative alone the employees, not

prompted by anyone but themselves, raised $174,000

plus another $25,000 in prizes. This was a matching

gift program and so together based on that we were

able to raise an additional $200,000. This enabled my

organization to focus on increasing our prep and

readiness program for hundreds of our students as well

as offer four-year scholarships to 10 new students.

Have you heard the notion let's not just

talk the talk but walk the walk? Well, as I look at

the commitment from the top of the house at Credit

Suisse senior management, they have been unbelievably

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generous with their resources and time, clearly

reflecting their belief in Student Sponsor Partners.

We have been blessed to have two key Credit

Suisse managing directors currently on our board.

Collectively they have dedicated 16 years of board

volunteer service to the organization, but much more,

they personally sponsored 28 students over the last

two decades and have been dedicated mentors.

Our past board chair and the prior head of

Credit Suisse Equities Department has provided

hundreds of hours offering leadership towards growing

this organization, recruiting hundreds of sponsors

internally and externally, and sponsoring himself 38

students over 26 years, and tirelessly and unselfishly

contribute to the longevity and the continued success

to Student Sponsor Partners.

The successful and meaningful story of

Credit Suisse partnership with Student Sponsor

Partners reaches the top of the house. This past

April Student Sponsor Partners honored Credit Suisse

for our longstanding and honorable relationship. It

is unusual but incredibly meaningful when a CEO

attends and accepts such an award and attends an

event. We were honored and humbled that Mr. Brady

Dougan, Credit Suisse's CEO, accepted the award on

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behalf of Credit Suisse.

I was just hired two days before this event

and therefore was personally blown away he was even

there, but what really took my breath away was his

true sincerity about the value of this partnership

because he is also a sponsor, and over the past five

years he has personally sponsored 35 of our students.

This is a CEO who expressed firsthand why the

partnership with Student Sponsor Partners made sense

not just to Credit Suisse but to the kids we are

serving.

Each year we support about 1,200 kids with

scholarships and mentoring support. If it was not for

SSP, if it was not for the partnership with Credit

Suisse, these kids would not have the ability to get a 

quality education, reach their high potential, go to

college, and maybe have a career in finance and move

their family out of poverty.

At the same event of 700 people where we

gathered we heard a story, a story about one of my

alumni, which also turned out to be a rising star at

Credit Suisse. This was a gentleman who grew up poor

in the projects in the Bronx, a single mom. I talked

to him personally and oftentimes they were on the

verge of being homeless. But through the support of

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Credit Suisse's general funding he was able to attend

an SSP school. He graduated and successfully

graduated from Wellesley University, and for the past

10 years this alumni has built a very, very successful

career in the capital markets at Credit Suisse and now

is working in the London office. In a few weeks we'll

be announcing that he will be co-chairing Student

Sponsor Partnership's Leadership Advisory Council.

This is just one of many successful shared outcomes

from our generation of our partnership with Credit

Suisse.

In closing, I have been in the philanthropy

world in many leadership roles for over 14 years. I 

am here to share that from my experiences a community

organization, a not-for-profit is as strong and

successful given their partner support, friendship,

and commitment to fulfilling the not-for-profit's

mission. We at Student Sponsor Partners are proud to

have Credit Suisse as one of our loyal and committed

partners. Our success is truly their success. Their

dedication to Student Sponsor Partners and to our

students is truly making a difference where it

matters.

Thank you very much for your time.

MS. BORZI: I just want to thank you, Ms.

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Williams, and also Mr. Garza because the important

work that both of your organizations do are critical

to the upkeep and success of our communities, and

without organizations like yours and all of the

committed volunteers and benefactors, government, we

need private partnerships, and the work that you do is

very important. I want to thank you so much for your

service.

MR. GARZA: Thank you.

MS. WILLIAMS: Thank you very much.

MR. HAUSER: Thank you. Thank you all for

attending.

MS. BORZI: May I just say one more thing?

I want to especially thank Erin for his hard

work. As we have heard today, this is a complicated

set of issues, and he has been our lead staff person

on this project, and I really want to personally thank

him both here and within our organization for the hard

work and dedication, so thank you very much.

(Applause.)

MR. HAUSER: Well, as I said at the start,

we'll keep the record open until January 26 if you

have supplemental comments or submissions, and then

we'll make decisions. Thank you very much.

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(Whereupon, at 4:24 p.m., the hearing in the

above-entitled matter was concluded.)

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REPORTER'S CERTIFICATE

DOCKET NO.: None

CASE TITLE: Proposed Individual Exemption

Involving Credit Suisse AG

HEARING DATE: January 15, 2015

LOCATION: Washington, D.C.

I hereby certify that the proceedings and

evidence are contained fully and accurately on the

tapes and notes reported by me at the hearing in the

above case before the United States Department of

Labor, Employee Benefits Security Administration.

Date: January 15, 2015

Judy Grill

Official Reporter

Heritage Reporting Corporation

Suite 600

1220 L Street, N.W.

Washington, D.C. 20005-4018

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