Exemption Involving UBS Assets Management (Americas) Inc.; UBS Realty Investors LLC; UBS Hedge Fund Solutions LLC; UBS O'Connor LLC; and Certain Future Affiliates in UBS's Asset Management and Global Wealth Management U.S. Divisions (Collectively, the Applicants or the UBS QPAMs) Located in Chicago, Illinois; Hartford, Connecticut; New York, New York; and Chicago, Illinois, Respectively

Published date26 February 2019
Citation84 FR 6163
Record Number2019-03339
SectionNotices
CourtEmployee Benefits Security Administration
Federal Register, Volume 84 Issue 38 (Tuesday, February 26, 2019)
[Federal Register Volume 84, Number 38 (Tuesday, February 26, 2019)]
                [Notices]
                [Pages 6163-6174]
                From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
                [FR Doc No: 2019-03339]
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                DEPARTMENT OF LABOR
                Employee Benefits Security Administration
                [Prohibited Transaction Exemption 2019-01; Exemption Application No. D-
                11988]
                Exemption Involving UBS Assets Management (Americas) Inc.; UBS
                Realty Investors LLC; UBS Hedge Fund Solutions LLC; UBS O'Connor LLC;
                and Certain Future Affiliates in UBS's Asset Management and Global
                Wealth Management U.S. Divisions (Collectively, the Applicants or the
                UBS QPAMs) Located in Chicago, Illinois; Hartford, Connecticut; New
                York, New York; and Chicago, Illinois, Respectively
                AGENCY: Employee Benefits Security Administration, Labor.
                ACTION: Notice of exemption.
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                SUMMARY: This document contains a notice of exemption issued by the
                Department of Labor (the Department) from certain of the prohibited
                transaction restrictions of the Employee Retirement Income Security Act
                of 1974 (ERISA or the Act) and/or the Internal Revenue Code of 1986
                (the Code). The exemption affects the ability of certain entities with
                specified relationships to UBS, UBS Securities Japan, and UBS France to
                continue to rely upon relief provided by Prohibited Transaction
                Exemption 84-14.
                DATES: This exemption will be in effect for one year from the date of
                the judgment in the French First Instance Court against UBS and/or UBS
                France in case number 1105592033.
                FOR FURTHER INFORMATION CONTACT: Mr. Brian Mica of the Department at
                (202) 693-8402. (This is not a toll-free number.)
                SUPPLEMENTARY INFORMATION: On February 13, 2019, the Department
                published a notice of proposed exemption in the Federal Register at 84
                FR 3818, for certain entities with specified relationships to UBS to
                continue to rely upon the relief provided by PTE 84-14 for a period of
                one year,\1\ notwithstanding certain criminal convictions, as described
                herein (the Convictions) and the 2019 French Judgment Against UBS/UBS
                France.
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                 \1\ 49 FR 9494, March 13, 1984, as corrected at 50 FR 41430
                (October 10, 1985), as amended at 70 FR 49305 (August 23, 2005) and
                as amended at 75 FR 38837 (July 6, 2010), hereinafter referred to as
                PTE 84-14 or the QPAM exemption.
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                 The Department is granting this exemption to ensure that Covered
                Plans \2\ with assets managed by an asset manager within the corporate
                family of UBS may continue to benefit from the relief provided by PTE
                84-14. This exemption will be in effect for one year from the date of
                the judgment in the French First Instance Court against UBS and/or UBS
                France. No inference should be drawn from the Department's granting of
                this one-year exemption that the Department will grant additional
                relief for UBS QPAMs to continue to rely on the relief in PTE 84-14
                following the end of the one-year period.
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                 \2\ ``Covered Plan'' is a plan subject to Part 4 of Title 1 of
                ERISA (``ERISA-covered plan'') or a plan subject to section 4975 of
                the Code (``IRA'') with respect to which a UBS QPAM relies on PTE
                84-14, or with respect to which a UBS QPAM (or any UBS affiliate)
                has expressly represented that the manager qualifies as a QPAM or
                relies on the QPAM class exemption (PTE 84-14). A Covered Plan does
                not include an ERISA-covered plan or IRA to the extent the UBS QPAM
                has expressly disclaimed reliance on QPAM status or PTE 84-14 in
                entering into its contract, arrangement, or agreement with the
                ERISA-covered plan or IRA.
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                 No relief from a violation of any other law is provided by this
                exemption, including any criminal convictions or
                [[Page 6164]]
                criminal conduct described in the proposed exemption. Furthermore, the
                Department cautions that the relief in this exemption will terminate
                immediately if, among other things, an entity within the UBS corporate
                structure is convicted of a crime described in Section I(g) of PTE 84-
                14 (other than the Convictions or the 2019 French Judgment Against UBS/
                UBS France) during the Exemption Period. The terms of this exemption
                are designed to promote adherence to basic fiduciary standards under
                ERISA and the Code. This exemption also aims to ensure that Covered
                Plans can terminate relationships in an orderly and cost effective
                fashion in the event the fiduciary of a Covered Plan determines it is
                prudent to terminate the relationship with a UBS QPAM. The Department
                notes that its determination that the requisite findings under ERISA
                section 408(a) have been met is premised on adherence to all of the
                conditions of the exemption. Accordingly, affected parties should be
                aware that the conditions incorporated in this exemption are, taken as
                a whole, necessary for the Department to grant the relief requested by
                the Applicant. Absent these or similar conditions, the Department would
                not have granted this exemption.
                 The Applicants requested an individual exemption pursuant to
                section 408(a) of ERISA and section 4975(c)(2) of the Code, and in
                accordance with the procedures set forth in 29 CFR part 2570, subpart B
                (76 FR 66637, 66644, October 27, 2011). Effective December 31, 1978,
                section 102 of the Reorganization Plan No. 4 of 1978, 5 U.S.C. App. 1
                (1996), transferred the authority of the Secretary of the Treasury to
                issue administrative exemptions under section 4975(c)(2) of the Code to
                the Secretary of Labor. Accordingly, this exemption is being granted
                solely by the Department.
                Department's Comment
                 The Department cautions that the relief in this exemption will
                terminate immediately if an entity within the UBS corporate structure
                is convicted of a crime described in Section I(g) of PTE 84-14 (other
                than the Convictions and the 2019 French Judgment Against UBS/UBS
                France) during the Exemption Period. Although the UBS QPAMs could apply
                for a new exemption in that circumstance, the Department would not be
                obligated to grant the exemption. The terms of this exemption have been
                specifically designed to permit plans to terminate their relationships
                in an orderly and cost effective fashion in the event of an additional
                conviction, or the expiration of this exemption without additional
                relief, or a determination that it is otherwise prudent for a plan to
                terminate its relationship with an entity covered by the exemption.
                Written Comments
                 The Department invited all interested persons to submit written
                comments and/or requests for a public hearing with respect to the
                notice of proposed exemption, published in the Federal Register at 84
                FR 3818 on February 13, 2019. All comments and requests for a hearing
                were due by February 19, 2019. The Department received written comments
                from the Applicant, the National Federation of Independent Business
                (NFIB), the Securities Industry and Financial Markets Association
                (SIFMA), and two members of the public. After considering the entire
                record developed in connection with the Applicant's exemption request,
                the Department has determined to grant the exemption, with revisions,
                as described below.
                UBS QPAMs Comments
                1. Effective Date and Notification Requirement
                 A. The UBS QPAMs have also requested that the Department issue an
                Advisory Opinion stating that an adverse judgment in the French First
                Instance Court would not constitute a conviction within the meaning of
                Section I(g) of PTE 84-14. The UBS QPAMs argue that if the Department
                determines that the French First Instance Court judgment does not
                constitute a conviction under Section I(g) of PTE 84-14 either because
                convictions in a foreign jurisdiction generally are not covered by
                Section I(g), or because the French First Instance Court's judgment, in
                particular, would not constitute a conviction under Section I(g), then
                the one year exemption will have been unnecessary as there would be no
                conviction for which an exemption is required. In that case, the UBS
                QPAMs state that the conditions of PTE 2017-07 should continue to be
                effective. The UBS QPAMs request that the Department revise the
                exemption to make clear that the exemption will expire automatically to
                the extent the Department issues an Advisory Opinion stating that the
                Potential 2019 French Judgment Against UBS/UBS France does not
                constitute a conviction for purposes of Section I(g) of PTE 84-14.
                 B. Additionally, the UBS QPAMs request that section I(k) of the
                exemption be revised so that the UBS QPAMs are not required to send
                notice within 60 days of the Potential 2019 French Judgment Against
                UBS/UBS France if the Department has not issued an Advisory Opinion
                within 60 days of the French First Instance Court's judgment.\3\ The
                UBS QPAMs argue that the notice should be required by the later of 60
                days from the date of judgment in the French First Instance Court or 30
                days after an advisory opinion is issued by the Department that is
                adverse to the UBS QPAMs advisory opinion request. The UBS QPAMs argue
                this would avoid the necessity of requiring the UBS QPAMs to spend a
                significant amount of time and resources notifying plans of an
                exemption that would be inoperative and avoid disclosure of information
                that would ultimately be superseded by an advisory opinion and require
                correction. The UBS QPAMs also request similar revisions to the notice
                provision in Section I(j)(7).\4\
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                 \3\ Proposed Section I(k) provides that: Within 60 days of the
                judgment against UBS or UBS France by the French First Instance
                Court, each UBS QPAM will provide a notice of the exemption, along
                with a separate summary describing the facts that led to the
                Convictions and the Potential 2019 French Judgment Against UBS/UBS
                France (the Summary), which have been submitted to the Department,
                and a prominently displayed statement (the Statement) (collectively,
                Initial Notice) that the Convictions and the Potential 2019 French
                Judgment Against UBS/UBS France, each separately result in a failure
                to meet a condition in PTE 84-14 and PTE 2017-07, to each sponsor
                and beneficial owner of a Covered Plan, or the sponsor of an
                investment fund in any case where a UBS QPAM acts as a sub-advisor
                to the investment fund in which such ERISA-covered plan and IRA
                invests. Effective as of the date that is 60 days after the
                Potential 2019 French Judgment Against UBS/UBS France Date, all
                Covered Plan clients that enter into a written asset or investment
                management agreement with a UBS QPAM after that date must receive a
                copy of the exemption, the Summary, and the Statement prior to, or
                contemporaneously with, the Covered Plan's receipt of a written
                asset management agreement from the UBS QPAM. Disclosures may be
                delivered electronically.
                 \4\ Section I(j)(7) requires: Within six months of the date of
                the judgment against UBS or UBS France by the French First Instance
                Court, each UBS QPAM must provide a notice of its obligations under
                this Section I(j) to each Covered Plan. For prospective Covered
                Plans that enter into a written asset or investment management
                agreement with a UBS QPAM on or after the date of such a judgment,
                the UBS QPAM will agree to its obligations under this Section I(j)
                in an updated investment management agreement between the UBS QPAM
                and such clients or other written contractual agreement. This
                condition will be deemed met for each Covered Plan that received a
                notice pursuant to PTE 2016-17 and/or PTE 2017-07 that meets the
                terms of this condition. Notwithstanding the above, a UBS QPAM will
                not violate the condition solely because a Plan or IRA refuses to
                sign an updated investment management agreement.
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                 Department's Response to Comment A. The Department declines to
                revise the proposed exemption as requested by the UBS QPAMs. The
                Department has construed Section I(g) as extending to
                [[Page 6165]]
                foreign convictions \5\ and granted new exemptions to convicted
                entities on the basis that foreign convictions were disqualifying under
                I(g).\6\ In addition, although UBS asserts that the judgment of the
                French First Instance Court should not count as a conviction for
                purposes of Section I(g) until such time as all appeals have been
                exhausted, Section I(g) expressly provides that ``a person shall be
                deemed to have been `convicted' from the date of the judgment of the
                trial court, regardless of whether that judgment remains under
                appeal.''
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                 \5\ The purpose and intent of Section I(g) is explained in the
                Preamble to Proposed Prohibited Transaction Exemption 84-14, 47 FR
                56945, 56947 (Dec. 21, 1982). That explanation provides: ``A QPAM,
                and those who may be in a position to influence its policies, are
                expected to maintain a high standard of integrity. Accordingly, the
                proposed exemption does not cover transactions if the QPAM or
                various affiliates have been convicted of various crimes (outlined
                in section I(g) of the proposal), that involve abuse or misuses of a
                position of trust, or felonies generally described in ERISA section
                411.'' The Department notes that, in relevant part, neither the
                language nor the intent of the provision in Section I(g) changed
                between the proposed exemption and the final Prohibited Transaction
                Exemption 84-14.
                 \6\ See, for example, the following exemptions issued by the
                Department, involving foreign convictions: Citigroup Inc., PTE 2012-
                08, 77 FR 19344 (March 30, 2012); Royal Bank of Canada, PTE 2016-10,
                81 FR 75147 (October 28, 2016); Northern Trust Corporation, PTE
                2016-11, 81 FR 75150 (October 28, 2016); Deutsche Bank, PTE 2015-15
                80 FR 53574, (September 4, 2015).
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                 The Department notes, however, that if UBS/UBS France is ultimately
                exonerated on appeal, or if the Department were to reverse its view on
                the significance of the judgment of the French First Instance Court or
                on whether Section I(g) covers foreign convictions--the subject of the
                UBS QPAMs' advisory opinion request--the UBS QPAMs could continue to
                rely upon PTE 2017-07, irrespective of this separate exemption,
                assuming they meet the other conditions of PTE 2017-07, and there are
                no subsequent convictions. No change in exemption text is necessary for
                the UBS QPAMs in that circumstance.
                 Department's Response to Comment B. The Department declines to make
                the requested revision. Before granting an exemption under Section
                408(a) of ERISA, the Department must conclude that its conditions are
                protective of affected plans and IRAs. The Department does not believe
                the exemption is sufficiently protective if UBS is permitted to delay
                required notification until after the Department resolved the pending
                advisory opinion request. In order to make informed decisions, Plans
                and IRAs with assets managed by UBS QPAMs should be aware and informed,
                at the soonest possible date, of the circumstances that caused UBS to
                submit its request for this exemption, along with the terms of this
                exemption.\7\ Moreover, the sudden loss of an asset manager's status as
                a QPAM could, in some circumstances, be disruptive, harmful, and/or
                expensive for plans and IRAs with assets managed by the QPAM. Notice of
                the conviction, the new exemption, its terms, and duration, enable
                plans and IRAs to protect their interests and to plan for future
                contingencies.
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                 \7\ PTE 2015-15, for example, required each Deutsche Bank QPAM
                to provide a notice of the exemption, along with a separate summary
                describing the facts that led to the Convictions (the Summary),
                which were submitted to the Department, and a prominently displayed
                statement (the Statement) that each Conviction separately resulted
                in a failure to meet a condition in PTE 84-14, to each sponsor and
                beneficial owner of a Covered Plan that entered into a written asset
                or investment management agreement with a DB QPAM on or before June
                16, 2018, or the sponsor of an investment fund in any case where a
                DB QPAM acts as a subadvisor to the investment fund in which such
                ERISA-covered plan and IRA invests. In that exemption, the ``term
                `Convictions' means (1) the judgment of conviction against DB Group
                Services that was entered on April 18, 2017, in case number 3:15-cr-
                00062-RNC in the United States District Court for the District of
                Connecticut to a single count of wire fraud, in violation of 18
                U.S.C. 1343 and (2) the judgment of conviction against DSK entered
                on January 25, 2016, in Seoul Central District Court, relating to
                charges filed against DSK under Articles 176, 443, and 448 of South
                Korea's Financial Investment Services and Capital Markets Act for
                spot/futures-linked market price manipulation. For all purposes
                under this exemption, `conduct' of any person or entity that is the
                `subject of [a] Conviction' encompasses the factual allegations
                described in Paragraph 13 of the Plea Agreement filed in the
                District Court in case number 3:15-cr-00062-RNC, and in the
                `Criminal Acts' section pertaining to `Defendant DSK' in the
                Decision of the Seoul Central District Court.''
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                 Notwithstanding the foregoing, however, the Department recognizes
                that the UBS QPAMs do not agree that the French First Instance Judgment
                resulted in violation of Section I(g). Accordingly, the Department has
                modified Section I(k) so that the UBS QPAMs do not have to expressly
                acknowledge that the 2019 French Judgment Against UBS/UBS France
                resulted in a failure to meet a condition in PTE 84-14 and PTE 2017-07,
                but rather may simply recite that the Department of Labor has reached
                that conclusion
                2. The Condition Making Future Foreign Convictions Disqualifying Should
                Be Omitted
                 Section I(l) of the Proposed Exemption provides that the exemption
                will ``immediately terminate'' in the event that ``an entity within the
                UBS corporate structure'' is ``convicted of a crime described in
                Section I(g) of PTE 84-14 . . . , or convicted in a foreign
                jurisdiction for a crime described in Section I(g) of PTE 84-14.''
                (Emphases added.)
                 The Applicant requests the removal of the reference to foreign
                convictions in Section I(l). In support of its request the Applicant
                states the following:
                 (A) The Department has not included foreign convictions in any
                prior exemption, and should not do so for the first time in a short-
                term, temporary exemption at a time when an advisory opinion request
                has been made on the question of whether foreign convictions should be
                disqualifying under PTE 84-14;
                 (B) the inclusion of foreign convictions within Section I(l) is
                problematic and not administratively feasible, as it would require the
                Department to interpret and apply foreign law with which it is not
                familiar and has no expertise;
                 (C) the Department is exceeding its authority by imposing a per se
                disqualification that is more sweeping than the disqualification
                Congress enacted in Section 411 of ERISA; and
                 (D) there are superior alternatives available to the Department
                that are better suited to address concerns that may arise from a
                foreign conviction, including a case-by-case approach whereby the
                Department could assess whether to modify or revoke the exemption.
                 Department's Response to A. As noted above, it is the Department's
                view that Section I(g) of PTE 84-14 is not limited to crimes committed
                in the United States, and extends to crimes committed in foreign
                jurisdictions.\8\ The quoted text in Section I(l) was merely intended
                to remove any doubt as to the effect of any future foreign conviction,
                not to cast doubt upon the Department's past application of Section
                I(g) to such convictions. After consideration of the comment, the
                Department has revised the condition to make it clear that the
                exemption will ``immediately terminate'' if ``an entity within the UBS
                corporate structure'' is ``convicted of a crime described in Section
                I(g) of PTE 84-14 . . . , including a conviction in a foreign
                jurisdiction.''
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                 \8\ See, for example, the following exemptions issued by the
                Department, involving foreign convictions: Citigroup Inc., PTE 2012-
                08, 77 FR 19344 (March 30, 2012); Royal Bank of Canada, PTE 2016-10,
                81 FR 75147 (October 28, 2016); Northern Trust Corporation, PTE
                2016-11, 81 FR 75150 (October 28, 2016); Deutsche Bank, PTE 2015-15
                80 FR 53574, (September 4, 2015).
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                 The Department stresses that a key purpose of Section I(g) is to
                ensure that a ``QPAM, and those who may be in a position to influence
                its policies, are expected to maintain a high standard of
                [[Page 6166]]
                integrity.'' \9\ Particularly in light of the 2019 French Judgment
                Against UBS/UBS France, the Department believes it is important to make
                clear when the UBS QPAMs would not be permitted to continue to rely on
                this exemption if any entity in the QPAM corporate structure is
                convicted of another serious foreign crime. In that circumstance, the
                Department would have significant cause for concern about the QPAMs'
                standards of integrity. Accordingly, they would be expected to submit a
                new application for an exemption based on full disclosure of the
                relevant facts and the Department's full evaluation of the significance
                of those facts.
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                 \9\ Preamble to Proposed Prohibited Transaction Exemption 84-14,
                47 FR 56945, 56947 (Dec. 21, 1982).
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                 Department's Response to Comment B. The Department does not agree
                that a condition that requires the UBS QPAMs to avoid covered foreign
                convictions results in an exemption that is not administratively
                feasible for the Department to implement. Although foreign laws and
                legal structures can be complex, the Department can draw upon a variety
                of resources (including submissions by the applicant) to determine if a
                conviction falls within Section I(g), as well as to determine the
                weight that the Department should give the conviction in deciding
                whether to grant a new exemption and how to structure the exemption.
                 As noted above, the Department has previously granted exemptions
                following foreign convictions, without significant difficulty in
                administration. The question of whether a foreign conviction falls
                within such categories as a ``felony arising out of the conduct of the
                business of a broker, dealer, investment adviser, bank, insurance
                company, or fiduciary'' or ``income tax evasion'', within the meaning
                of the exemption, is not inherently more difficult or less
                administrable than many of the questions that the Department routinely
                considers in the exemption process (e.g., questions relating to complex
                and unfamiliar financial transactions).
                 A service provider's conviction for a serious foreign crime is
                relevant to a fiduciary's analysis of whether to retain the service
                provider, and it is similarly relevant to the Department's
                determination of whether to grant the service provider relief from
                otherwise prohibited transactions.\10\ The express reference to foreign
                convictions is necessary to safeguard the interests of plan
                participants and IRA owners.
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                 \10\ In this regard, when selecting or monitoring an asset
                manager, plan fiduciaries should not disregard foreign crimes
                committed by an entity within the asset manager's corporate
                structure, merely because the crimes may be complicated or difficult
                to interpret.
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                 Department's response to Comment C. Section 411 of ERISA enumerates
                specific crimes that disqualify convicted persons from acting as
                service providers and fiduciaries to ERISA-covered plans. The exemption
                condition, in contrast, conditions a QPAM's ability to engage in
                otherwise prohibited transactions on the QPAM's avoidance of serious
                criminal misconduct, so that the Department can have an appropriate
                level of confidence that the institution maintains a standard of high
                integrity.
                 In other words, Section 411 prohibits conduct that would otherwise
                be legal, while the exemption permits conduct that would otherwise be
                illegal. Section I(g) of the QPAM exemption has always covered crimes
                that are not expressly covered by Section 411 of ERISA; it serves a
                related, but different, purpose than Section 411.
                 Section 408(a) of ERISA requires the Department to limit the
                availability of administrative exemptions to transactions and
                arrangements that are protective of, and in the interest of, affected
                plans and IRAs, and administratively feasible. As discussed above, the
                condition on foreign convictions is critical to the Department's
                determination that the exemption at issue here meets the statutory
                test.
                 Department's Response to Comment D. The Department disagrees with
                the comment. Another serious foreign conviction would call into
                question the basis for permitting the UBS QPAMs to engage in prohibited
                transactions. If a trial court makes a determination of criminal
                misconduct, it would be appropriate to place the burden of seeking a
                new exemption on the UBS QPAMs. At that time, the Department would
                expect full disclosure of the wrongdoing that resulted in the
                conviction; the reasons (if any) that the Department should not be
                concerned about granting the QPAMs continued relief from ERISA's
                prohibited transaction provisions; and the basis for concluding that
                the UBS QPAMs will perform their fiduciary responsibilities with a high
                standard of integrity. The Department could then conduct a full
                analysis of whether and how to grant any further relief. This approach
                is both administrable and appropriately protective of the interests of
                plans, plan participants, and IRA owners.
                Comment 3--Proposed Modifications to the Conditions in PTE 2017-07--
                Section I(a), I(b) and I(h)(2)
                 The UBS QPAMs state that the exemption should contain the same
                conditions as PTE 2017-07 and those conditions should not have been
                modified for purposes of this one-year exemption. In the UBS QPAMs'
                view, the Department should not impose additional conditions, without
                first resolving whether the adverse judgment in the French First
                Instance Court constitutes a conviction under Section I(g) of PTE 84-
                14. Additionally, the UBS QPAMs state that the modifications to the
                conditions of PTE 2017-07 do not take into account the UBS QPAMs'
                record of compliance with the terms of their prior exemptions.
                 Section I(a) of the proposed exemption provides in part that
                ``[t]he UBS QPAMs (including their officers, directors, agents other
                than UBS, UBS Securities Japan, and UBS France), and employees of such
                UBS QPAMs and any other party engaged on behalf of such UBS QPAMs who
                had responsibility for, or exercised authority in connection with the
                management of plan assets did not know of, did not have reason to know
                of, or participate in: (1) The FX Misconduct; (2) the criminal conduct
                of UBS Securities Japan and UBS that is the subject of the Convictions;
                or (3) the criminal conduct of UBS and UBS France that is the subject
                of the Potential 2019 French Judgment Against UBS/UBS France.'' Section
                I(b) of the proposed exemption provides that ``[t]he UBS QPAMs
                (including their officers, directors, agents other than UBS, UBS
                Securities Japan, and UBS France, and employees of such UBS QPAMs and
                any other parties engaged on behalf of such UBS QPAMs) did not receive
                direct compensation, or knowingly receive indirect compensation, in
                connection with (1) the FX Misconduct; (2) the criminal conduct of UBS
                Securities Japan and UBS that is the subject of the Convictions; or (3)
                the criminal conduct of UBS and UBS France that is the subject of the
                Potential 2019 French Judgment Against UBS/UBS France.''
                 The UBS QPAMs state that requiring these conditions to apply to
                third parties effectively conditions the exemption on facts regarding
                third parties that the UBS QPAMs are not in a position to know or
                confirm, and that the conditions, therefore, are not in the interest of
                participants and beneficiaries. The UBS QPAMs additionally claim that
                the Department previously had found that the conditions described in
                PTE 2017-07
                [[Page 6167]]
                were sufficient to isolate the investment and compliance operations of
                the QPAMs from the influence of bad actors. The UBS QPAMs also argue
                that modifications to existing conditions that are specific to the
                conduct underlying prior convictions runs afoul of the Department's
                regulations at 29 CFR 2570.50. According to the UBS QPAMs, this
                regulation requires the Department notify the applicant of its proposed
                actions and reasons prior to publication of a notice proposing a
                modification or revocation. If the Department declines to delete the
                third party language entirely, the UBS QPAMs request that the language
                apply only to the Potential 2019 French Judgment Against UBS/UBS
                France.
                 Today the Department is granting a new exemption based on the
                application from the UBS QPAMs and is not modifying PTE 2017-07. The
                Department has determined to modify section I(a) and I(b) from the
                language of the proposed exemption to reflect that the language ``any
                other party engaged on behalf of such UBS QPAMs who had responsibility
                for, or exercised authority in connection with the management of plan
                assets'' will be applicable only for purposes of the criminal conduct
                of UBS and UBS France that is the subject of the 2019 French Judgment
                Against UBS/UBS France.
                 Accordingly, Section I(a) is revised in part as follows: ``I(a) The
                UBS QPAMS (including their officers, directors, agents other than UBS,
                UBS Securities, Japan and UBS France, and the employees of such UBS
                QPAMs), did not have reason to know of, or participate in: (1) The FX
                Misconduct; (2) the criminal conduct of UBS Securities Japan and UBS
                that is the subject of the Convictions; or (3) the criminal conduct of
                UBS and UBS France that is the subject of the 2019 French Judgment
                Against UBS/UBS France. Further, any other party engaged on behalf of
                such UBS QPAMs who had responsibility for, or exercised authority in
                connection with the management of plan assets did not know of, did not
                have reason to know of, or participate in the criminal conduct of UBS
                and UBS France that is the subject of the 2019 French Judgment Against
                UBS/UBS France.'' Section I(b) is revised as follows: (b) The UBS QPAMs
                (including their officers, directors, agents other than UBS, UBS
                Securities Japan, and UBS France, and employees of such UBS QPAMs) did
                not receive direct compensation, or knowingly receive indirect
                compensation, in connection with the (1) the FX Misconduct; (2) the
                criminal conduct of UBS Securities Japan and UBS that is the subject of
                the Convictions; or (3) the criminal conduct of UBS and UBS France that
                is the subject of the 2019 French Judgment Against UBS/UBS France.
                Further, any other party engaged on behalf of such UBS QPAMs who had
                responsibility for, or exercised authority in connection with the
                management of plan assets did not receive direct compensation, or
                knowingly receive indirect compensation, in connection with the
                criminal conduct of UBS and UBS France that is the subject of the 2019
                French Judgment Against UBS/UBS France.''
                 Section I(h)(2) of the proposed exemption provides that ``Any
                violation of, or failure to comply with an item in subparagraphs
                (h)(1)(ii) through (h)(1)(vi), is corrected as soon as reasonably
                possible upon discovery, or as soon after the QPAM reasonably should
                have known of the noncompliance (whichever is earlier), and any such
                violation or compliance failure not so corrected is reported, upon the
                discovery of such failure to so correct, in writing. Such report shall
                be made to the head of compliance and the General Counsel (or their
                functional equivalent) of the relevant UBS QPAM that engaged in the
                violation or failure, and, the independent auditor responsible for
                reviewing compliance with the Policies, and a fiduciary of any affected
                Covered Plan where such fiduciary is independent of UBS.''
                 The UBS QPAMs request that the language regarding reporting
                uncorrected policy violations or compliance failures to ``a fiduciary
                of any affected Covered Plan'' should be omitted from the exemption.
                The UBS QPAMs state that the Department previously proposed this
                requirement in other exemptions but omitted the requirement from the
                final exemptions due to the concerns of the applicants. The UBS QPAMs
                claim it will be problematic to comply with this requirement because:
                It is uncertain when the uncorrected violations or failures must be
                reported to the plan fiduciaries; due to a lack of materiality
                threshold, this requirement may prompt frequent reports of technical or
                insignificant violations requiring the expenditure of time and
                resources without any benefit to plans; and the condition is unclear on
                how many fiduciaries of a plan must receive the report. Moreover, the
                UBS QPAMs argue that requirement is unnecessary given the requirement
                that the independent auditor will evaluate any uncorrected violations
                or compliance failures and the violations will be addressed in audit
                reports which are publically available.
                 Given the requirement of the independent audit and the public
                availability of the audit report, the Department has determined not to
                include the additional requirement of separate notice to ``a fiduciary
                of any affected Covered Plan.'' The Department has modified section
                I(h)(2) accordingly.
                Comment 4(a)--Definition of ``Conduct'' That Is the ``Subject Of'' an
                Adverse First Instance Judgment--Section II(b)
                 Section II(b) of the proposed exemption provides in part ``[f]or
                all purposes under this exemption, ``conduct'' of any person or entity
                that is the ``subject of the alleged criminal conduct that may be the
                subject of the Potential 2019 French Judgment Against UBS/UBS France''
                encompasses any conduct of UBS, its affiliates, or UBS France and/or
                their personnel that is described in any such judgment.'' The UBS QPAMs
                argue that unlike in prior exemptions that used a similar formulation
                of ``conduct'', UBS does not know at this time the specific conduct
                that will be described in any adverse judgment by the French First
                Instance Court. The UBS QPAMs claim that under French criminal
                procedure the description of the conduct would not be finalized until
                after the date of the adverse judgment, and possibly months later. The
                UBS QPAMS state they have no reason to believe they will unable to
                satisfy conditions in the exemption to which the definition in Section
                II(b) would apply, but that they believe those conditions should only
                be operative after the written description of the judgment has been
                issued and the UBS QPAMs have opportunity to review the description.
                Therefore, the UBS QPAMS request that Section II(b) be revised to
                provide that any conditions based on the conduct described in any
                adverse First Instance Judgment only become effective 60 days after the
                final written description for the judgment is issued.
                 The Department is not making the requested revision to the
                definition in Section II(b). The Department believes that UBS has
                sufficient information of the conduct at issue to comply with the
                exemption condition. However, the Department has revised Section II(b)
                to provide more clarity. To make the required findings under section
                408(a) of ERISA, the Department concludes that the conditions relating
                to criminal conduct should be applied as of the effective date of the
                exemption.
                Comment 4(b)--Structure of UBS Compliance Function--Section I(m)(1)(ii)
                 The UBS QPAMs requested that Section I(m)(1)(ii) of the exemption
                be
                [[Page 6168]]
                modified to correctly reflect the current structure of UBS's compliance
                function. Accordingly, the Department has deleted the phrase ``the
                Global Head of C&ORC, who will report directly to UBS's Chief Risk
                Officer'' from Section I(m)(1)(ii).
                National Federation of Independent Business
                 The Department received a comment from the National Federation of
                Independent Business (NFIB) stating the Department should afford
                interested persons a longer time period to view files with respect to
                proposed exemptions, and to comment on the exemptions. The NFIB states
                that longer time periods are necessary to afford them the notice and
                opportunity to be heard to which the law entitles them, and would give
                the Department the time necessary to make better-informed decisions.
                NFIB also claims that the Department should take greater care to ensure
                compliance with the procedural requirements set by statute for the
                grant of exemptions in order to avoid the risk of successful legal
                challenges to its exemptions.
                 In response to these assertions, the Department stresses that the
                comment period was appropriate under the circumstances of this
                particular proposed exemption. The period was necessarily limited
                because of the potential for an adverse judgment in the French First
                Instance Court on February 20, 2019, which could prevent the UBS QPAMs
                from continuing to rely upon the relief provided by PTE 84-14 and
                potentially cause harm to participants and beneficiaries. This
                exemption is for a temporary one-year period and if the UBS QPAMs apply
                for longer term exemptive relief, the Department will consider and
                afford a longer comment period for such relief, as appropriate.
                SIFMA Comment
                 The Department received a comment from the Securities Industry and
                Financial Markets Association (SIFMA) urging the Department to issue an
                advisory opinion that section I(g) does not encompass foreign crimes.
                SIFMA states that if the Department does not issue the requested
                advisory opinion to SIFMA that section I(g) does not encompass foreign
                crimes, and declines to issue an advisory opinion to UBS on the effect
                of the French judgment on section I(g), and instead moves forward with
                this proposed temporary exemption application, it should delete the
                condition in section 1(l) that adds foreign convictions to the type of
                convictions that would cause the exemption to be immediately
                unavailable.
                 SIFMA argues that all the considerations described in Small v.
                United States \11\ in support of the Court's construction of a statute
                are also relevant in determining whether exemption conditions based on
                foreign convictions meet the administratively feasible requirement of
                ERISA section 408(a). According to SIFMA, in order to make a
                determination that any foreign conviction should be disqualifying, the
                Department would have to understand and apply the criminal laws and
                criminal procedures of any one of hundreds of foreign countries, as
                well as the cases decided under those laws. In SIFMA's view, the
                reasons cited by the Supreme Court in Small as weighing against asking
                prosecutors or judges to ``refine'' these ``definitional distinctions''
                on the facts of that case equally weigh against the Department's
                finding that an exemption referencing foreign convictions is
                administratively feasible within the meaning of ERISA section
                408(a)(1). This is especially true, according to SIFMA, where the
                likelihood of ``getting it wrong'' is high, in light of the
                complexities and vagaries of foreign law.'' The Department's response
                to UBS's comments above, particularly UBS's comments on whether the
                exemption is administratively feasible, effectively address these
                points.
                ---------------------------------------------------------------------------
                 \11\ See Small v. United States, 544 U.S. 385, 388-89 (2005).
                ---------------------------------------------------------------------------
                 In light of the 2019 French Judgment Against UBS/UBS France, the
                Department believes it is important to make clear when the UBS QPAMs
                would not be permitted to continue to rely on this exemption if a
                member of the UBS corporate family is convicted of another serious
                foreign crime. In that circumstance, the Department would have still
                greater cause for concern about whether the UBS QPAMs and those in a
                position to influence their policies, maintain high standards of
                integrity and about the appropriateness of relief from the prohibited
                transaction provisions, which were enacted to protect plans,
                participants, and IRA owners from potentially abusive transactions. In
                that circumstance, the Department has concluded that it would be
                appropriate for the UBS QPAMs to seek a new exemption based upon a full
                consideration of the record and the misconduct at issue, rather than to
                rely upon an exemption that predates the new misconduct and the
                Department's consideration of that misconduct. The Applicants have also
                commented on the condition in section I(l) and the comment has been
                addressed above.
                Comments From the Public
                 The Department received two comments from the public. One commenter
                stated that he thought the exemption was a ``good rule.'' A second
                commenter noted that he agreed with the Department that performance of
                the exemption audit on less than an annual basis will weaken an
                important plan protection. This commenter also stated that he agreed
                that an annual review by an independent auditor of a QPAM's written
                policies and procedures and a representative sample of plan
                transactions is necessary to address the lack of QPAM independence.
                Lastly, this commenter noted that he agreed with the Department's
                assessment of costs associated with the exemption audit and expressed
                approval for the ``proposed amendments.''
                General Information
                 The attention of interested persons is directed to the following:
                 (1) The fact that a transaction is the subject of an exemption
                under section 408(a) of the Act or section 4975(c)(2) of the Code does
                not relieve a fiduciary or other party in interest or disqualified
                person from certain other provisions of the Act and/or the Code,
                including any prohibited transaction provisions to which the exemption
                does not apply and the general fiduciary responsibility provisions of
                section 404 of the Act, which, among other things, require a fiduciary
                to discharge his duties respecting the plan solely in the interest of
                the participants and beneficiaries of the plan and in a prudent fashion
                in accordance with section 404(a)(1)(B) of the Act; nor does it affect
                the requirement of section 401(a) of the Code that the plan must
                operate for the exclusive benefit of the employees of the employer
                maintaining the plan and their beneficiaries;
                 (2) In accordance with section 408(a) of ERISA and section
                4975(c)(2) of the Code, the Department makes the following
                determinations: The exemption is administratively feasible, the
                exemption is in the interests of affected plans and of their
                participants and beneficiaries, and the exemption is protective of the
                rights of participants and beneficiaries of such plans;
                 (3) The exemption is supplemental to, and not in derogation of, any
                other provisions of ERISA, including statutory or administrative
                exemptions and transitional rules. Furthermore, the fact that a
                transaction is subject to an administrative or statutory exemption is
                not dispositive of whether the
                [[Page 6169]]
                transaction is in fact a prohibited transaction; and
                 (4) The availability of this exemption is subject to the express
                condition that the material facts and representations contained in the
                application accurately describe all material terms of the transaction
                which is the subject of the exemption.
                 Accordingly, the following exemption is granted under the authority
                of section 408(a) of ERISA and section 4975(c)(2) of the Code and in
                accordance with the procedures set forth in 29 CFR part 2570, subpart B
                (76 FR 66637, 66644, October 27, 2011):
                Exemption
                Section I. Covered Transactions
                 Certain entities with specified relationships to UBS (hereinafter,
                the UBS QPAMs, as defined in Sections II(e)) will not be precluded from
                relying on the exemptive relief provided by Prohibited Transaction
                Class Exemption 84-14 (PTE 84-14 or the QPAM Exemption),\12\
                notwithstanding the 2013 Conviction of UBS Securities Japan Co., Ltd.,
                the 2018 Conviction of UBS (collectively the Convictions, as defined in
                Section II(a)), and the 2019 French Judgment Against UBS/UBS France (as
                defined in Section II(b)) during the Exemption Period, provided that
                the following conditions are satisfied: \13\
                ---------------------------------------------------------------------------
                 \12\ 49 FR 9494 (March 13, 1984), as corrected at 50 FR 41430,
                (October 10, 1985), as amended at 70 FR 49305(August 23, 2005), and
                as amended at 75 FR 38837 (July 6, 2010), hereinafter referred to as
                ``PTE 84-14'' or the ``QPAM Exemption.''
                 \13\ Section I(g) of PTE 84-14 generally provides that
                ``[n]either the QPAM nor any affiliate thereof . . . nor any owner .
                . . of a 5 percent or more interest in the QPAM is a person who
                within the 10 years immediately preceding the transaction has been
                either convicted or released from imprisonment, whichever is later,
                as a result of'' certain criminal activity therein described.
                ---------------------------------------------------------------------------
                 (a) The UBS QPAMS (including their officers, directors, agents
                other than UBS, UBS Securities, Japan and UBS France, and the employees
                of such UBS QPAMs, did not have reason to know of, or participate in:
                (1) The FX Misconduct; (2) the criminal conduct of UBS Securities Japan
                and UBS that is the subject of the Convictions; or (3) the criminal
                conduct of UBS and UBS France that is the subject of the 2019 French
                Judgment Against UBS/UBS France. Further, any other party engaged on
                behalf of such UBS QPAMs who had responsibility for, or exercised
                authority in connection with the management of plan assets did not know
                of, did not have reason to know of, or participate in the criminal
                conduct of UBS and UBS France that is the subject of the 2019 French
                Judgment Against UBS/UBS France. For purposes of this exemption,
                ``participate in'' refers not only to active participation in the FX
                Misconduct, the misconduct underlying the Convictions, and the
                misconduct underlying the 2019 French Judgment Against UBS/UBS France,
                but also to knowing approval of that misconduct, or knowledge of such
                misconduct without taking active steps to prohibit such conduct, such
                as reporting the conduct to supervisors, including the Board of
                Directors;
                 (b) The UBS QPAMs (including their officers, directors, agents
                other than UBS, UBS Securities Japan, and UBS France, and employees of
                such UBS QPAMs) did not receive direct compensation, or knowingly
                receive indirect compensation, in connection with the (1) the FX
                Misconduct; (2) the criminal conduct of UBS Securities Japan and UBS
                that is the subject of the Convictions; or (3) the criminal conduct of
                UBS and UBS France that is the subject of the 2019 French Judgment
                Against UBS/UBS France. Further, any other party engaged on behalf of
                such UBS QPAMs who had responsibility for, or exercised authority in
                connection with the management of plan assets did not receive direct
                compensation, or knowingly receive indirect compensation, in connection
                with the criminal conduct of UBS and UBS France that is the subject of
                the 2019 French Judgment Against UBS/UBS France;
                 (c) The UBS QPAMs will not employ or knowingly engage any of the
                individuals who participated in: (1) The FX Misconduct; (2) the
                criminal conduct of UBS Securities Japan and UBS that is the subject of
                the Convictions; or (3) the criminal conduct of UBS and UBS France that
                is the subject of the 2019 French Judgment Against UBS/UBS France;
                 (d) At all times during the Exemption Period, no UBS QPAM will use
                its authority or influence to direct an ``investment fund'' (as defined
                in Section VI(b) of PTE 84-14) that is subject to ERISA or the Code and
                managed by such UBS QPAM with respect to one or more Covered Plans (as
                defined in Section II(c)) to enter into any transaction with UBS, UBS
                Securities Japan, or UBS France or to engage UBS, UBS Securities Japan,
                or UBS France to provide any service to such investment fund, for a
                direct or indirect fee borne by such investment fund, regardless of
                whether such transaction or service may otherwise be within the scope
                of relief provided by an administrative or statutory exemption;
                 (e) Any failure of the UBS QPAMs to satisfy Section I(g) of PTE 84-
                14 arose solely from the Convictions and the 2019 French Judgment
                Against UBS/UBS France;
                 (f) A UBS QPAM did not exercise authority over the assets of any
                plan subject to Part 4 of Title I of ERISA (an ERISA-covered plan) or
                section 4975 of the Code (an IRA) in a manner that it knew or should
                have known would: Further the FX Misconduct, the criminal conduct that
                is the subject of the Convictions, or the criminal conduct of UBS and
                UBS France that is the subject of the 2019 French Judgment Against UBS/
                UBS France; or cause the UBS QPAM or its affiliates to directly or
                indirectly profit from the FX Misconduct, the criminal conduct that is
                the subject of the Convictions, or the criminal conduct of UBS and UBS
                France that is the subject of the 2019 French Judgment Against UBS/UBS
                France;
                 (g) Other than with respect to employee benefit plans maintained or
                sponsored for its own employees or the employees of an affiliate, UBS,
                UBS Securities Japan, and UBS France will not act as fiduciaries within
                the meaning of section 3(21)(A)(i) or (iii) of ERISA, or section
                4975(e)(3)(A) and (C) of the Code, with respect to ERISA-covered plan
                and IRA assets; provided, however, that UBS, UBS Securities Japan, and
                UBS France will not be treated as violating the conditions of this
                exemption solely because it acted as an investment advice fiduciary
                within the meaning of section 3(21)(A)(ii) of ERISA or section
                4975(e)(3)(B) of the Code;
                 (h)(1) Each UBS QPAM must continue to maintain, adjust (to the
                extent necessary), implement, and follow written policies and
                procedures (the Policies). The Policies must require, and must be
                reasonably designed to ensure that:
                 (i) The asset management decisions of the UBS QPAM are conducted
                independently of UBS's corporate management and business activities,
                including the corporate management and business activities of the
                Investment Bank division, UBS Securities Japan, and UBS France; this
                condition does not preclude a UBS QPAM from receiving publicly
                available research and other widely available information from a UBS
                affiliate;
                 (ii) The UBS QPAM fully complies with ERISA's fiduciary duties, and
                with ERISA and the Code's prohibited transaction provisions, in each
                case as applicable with respect to each Covered Plan, and does not
                knowingly participate in any violation of these duties and provisions
                with respect to Covered Plans;
                [[Page 6170]]
                 (iii) The UBS QPAM does not knowingly participate in any other
                person's violation of ERISA or the Code with respect to Covered Plans;
                 (iv) Any filings or statements made by the UBS QPAM to regulators,
                including, but not limited to, the Department, the Department of the
                Treasury, the Department of Justice, and the Pension Benefit Guaranty
                Corporation, on behalf of or in relation to Covered Plans, are
                materially accurate and complete, to the best of such QPAM's knowledge
                at that time;
                 (v) To the best of the UBS QPAM's knowledge at that time, the UBS
                QPAM does not make material misrepresentations or omit material
                information in its communications with such regulators with respect to
                Covered Plans, or make material misrepresentations or omit material
                information in its communications with Covered Plans;
                 (vi) The UBS QPAM complies with the terms of this exemption;
                 (2) Any violation of, or failure to comply with an item in
                subparagraphs (h)(1)(ii) through (h)(1)(vi), is corrected as soon as
                reasonably possible upon discovery, or as soon after the QPAM
                reasonably should have known of the noncompliance (whichever is
                earlier), and any such violation or compliance failure not so corrected
                is reported, upon the discovery of such failure to so correct, in
                writing. Such report shall be made to the head of compliance and the
                General Counsel (or their functional equivalent) of the relevant UBS
                QPAM that engaged in the violation or failure, and the independent
                auditor responsible for reviewing compliance with the Policies. A UBS
                QPAM will not be treated as having failed to develop, implement,
                maintain, or follow the Policies, provided that it corrects any
                instance of noncompliance as soon as reasonably possible upon
                discovery, or as soon as reasonably possible after the QPAM reasonably
                should have known of the noncompliance (whichever is earlier), and
                provided that it adheres to the reporting requirements set forth in
                this subparagraph (vii);
                 (3) Each UBS QPAM will maintain, adjust (to the extent necessary)
                and implement a program of training during the Exemption Period, to be
                conducted during the Exemption Period, for all relevant UBS QPAM asset/
                portfolio management, trading, legal, compliance, and internal audit
                personnel. The Training must:
                 (i) At a minimum, cover the Policies, ERISA and Code compliance
                (including applicable fiduciary duties and the prohibited transaction
                provisions), ethical conduct, the consequences for not complying with
                the conditions of this exemption (including any loss of exemptive
                relief provided herein), and prompt reporting of wrongdoing; and
                 (ii) Be conducted by a professional who has been prudently selected
                and who has appropriate technical training and proficiency with ERISA
                and the Code;
                 (i)(1) Each UBS QPAM submits to an audit conducted by an
                independent auditor, who has been prudently selected and who has
                appropriate technical training and proficiency with ERISA and the Code,
                to evaluate the adequacy of, and each UBS QPAM's compliance with, the
                Policies and Training described herein. The audit requirement must be
                incorporated in the Policies. The audit must cover the Exemption Period
                and must be completed no later than six (6) months after the end of the
                exemption period. For time periods ending prior to the judgment against
                UBS or UBS France by the French First Instance Court and covered by the
                audit required pursuant to PTE 2017-07,\14\ the audit requirements in
                Section I(i) of PTE 2017-07 will remain in effect. The audit under PTE
                2017-07 covering the time period from January 10, 2018 until the date
                of the judgment against UBS or UBS France by the French First Instance
                Court must be completed within six (6) months of the date of any such
                judgment, and the corresponding certified Audit Report must be
                submitted to the Department no later than 45 days following the
                completion of such audit; \15\
                ---------------------------------------------------------------------------
                 \14\ 82 FR 61903 (December 29, 2017). PTE 2017-07 is an
                exemption that permits UBS QPAMs to rely on the exemptive relief
                provided by PTE 84-14, notwithstanding the 2013 and 2018
                Convictions.
                 \15\ Pursuant to PTE 2017-07, the initial audit period begins on
                January 10, 2018 and ends on March 9, 2019, and the corresponding
                Audit Report must be completed by September 9, 2019 and the Audit
                Report submitted to the Department within 45 days after completion.
                Accordingly, the last audit performed pursuant to PTE 2017-07 will
                cover the period beginning January 10, 2018 and ending on the date
                of judgment against UBS or UBS France by the French First Instance
                Court. The corresponding Audit Report must be completed within six
                months of the judgment and submitted to the Department within 45
                days of completion.
                ---------------------------------------------------------------------------
                 (2) Within the scope of the audit and to the extent necessary for
                the auditor, in its sole opinion, to complete its audit and comply with
                the conditions for relief described herein, and only to the extent such
                disclosure is not prevented by state or federal statute, or involves
                communications subject to attorney client privilege, each UBS QPAM and,
                if applicable, UBS, will grant the auditor unconditional access to its
                business, including, but not limited to: Its computer systems; business
                records; transactional data; workplace locations; training materials;
                and personnel. Such access is limited to information relevant to the
                auditor's objectives as specified by the terms of this exemption;
                 (3) The auditor's engagement must specifically require the auditor
                to determine whether each UBS QPAM has developed, implemented,
                maintained, and followed the Policies in accordance with the conditions
                of this exemption, and has developed and implemented the Training, as
                required herein;
                 (4) The auditor's engagement must specifically require the auditor
                to test each UBS QPAM's operational compliance with the Policies and
                Training. In this regard, the auditor must test, for each UBS QPAM, a
                sample of such UBS QPAM's transactions involving Covered Plans,
                sufficient in size and nature to afford the auditor a reasonable basis
                to determine such UBS QPAM's operational compliance with the Policies
                and Training;
                 (5) For the audit, on or before the end of the relevant period
                described in Section I(i)(1) for completing the audit, the auditor must
                issue a written report (the Audit Report) to UBS and the UBS QPAM to
                which the audit applies that describes the procedures performed by the
                auditor in connection with its examination. The auditor, at its
                discretion, may issue a single consolidated Audit Report that covers
                all the UBS QPAMs. The Audit Report must include the auditor's specific
                determinations regarding:
                 (i) The adequacy of each UBS QPAM's Policies and Training; each UBS
                QPAM's compliance with the Policies and Training; the need, if any, to
                strengthen such Policies and Training; and any instance of the
                respective UBS QPAM's noncompliance with the written Policies and
                Training described in Section I(h) above. The UBS QPAM must promptly
                address any noncompliance. The UBS QPAM must promptly address or
                prepare a written plan of action to address any determination as to the
                adequacy of the Policies and Training and the auditor's recommendations
                (if any) with respect to strengthening the Policies and Training of the
                respective UBS QPAM. Any action taken or the plan of action to be taken
                by the respective UBS QPAM must be included in an addendum to the Audit
                Report (such addendum must be completed prior to the certification
                described in Section I(i)(7) below). In the event such a plan of action
                to address the auditor's recommendation regarding the adequacy of the
                Policies and Training is not completed by the time of
                [[Page 6171]]
                submission of the Audit Report, the following period's Audit Report
                must state whether the plan was satisfactorily completed. Any
                determination by the auditor that a UBS QPAM has implemented,
                maintained, and followed sufficient Policies and Training must not be
                based solely or in substantial part on an absence of evidence
                indicating noncompliance. In this last regard, any finding that a UBS
                QPAM has complied with the requirements under this subparagraph must be
                based on evidence that the particular UBS QPAM has actually
                implemented, maintained, and followed the Policies and Training
                required by this exemption. Furthermore, the auditor must not solely
                rely on the Exemption Report created by the compliance officer (the
                Compliance Officer), as described in Section I(m) below, as the basis
                for the auditor's conclusions in lieu of independent determinations and
                testing performed by the auditor as required by Section I(i)(3) and (4)
                above; and
                 (ii) The adequacy of the Exemption Review described in Section
                I(m);
                 (6) The auditor must notify the respective UBS QPAM of any instance
                of noncompliance identified by the auditor within five (5) business
                days after such noncompliance is identified by the auditor, regardless
                of whether the audit has been completed as of that date;
                 (7) With respect to the Audit Report, the General Counsel, or one
                of the three most senior executive officers of the UBS QPAM to which
                the Audit Report applies, must certify in writing, under penalty of
                perjury, that the officer has reviewed the Audit Report and this
                exemption; that, to the best of such officer's knowledge at the time,
                such UBS QPAM has addressed, corrected, remedied any noncompliance and
                inadequacy or has an appropriate written plan to address any inadequacy
                regarding the Policies and Training identified in the Audit Report.
                Such certification must also include the signatory's determination,
                that, to the best of such officer's knowledge at the time, the Policies
                and Training in effect at the time of signing are adequate to ensure
                compliance with the conditions of this exemption and with the
                applicable provisions of ERISA and the Code;
                 (8) The Risk Committee of UBS's Board of Directors is provided a
                copy of the Audit Report; and a senior executive officer of UBS's
                Compliance and Operational Risk Control function must review the Audit
                Report for each UBS QPAM and must certify in writing, under penalty of
                perjury, that such officer has reviewed the Audit Report;
                 (9) Each UBS QPAM provides its certified Audit Report, by regular
                mail to: Office of Exemption Determinations (OED), 200 Constitution
                Avenue NW, Suite 400, Washington, DC 20210; or by private carrier to:
                122 C Street NW, Suite 400, Washington, DC 20001-2109. This delivery
                must take place no later than 45 days following completion of the Audit
                Report. The Audit Report will be made part of the public record
                regarding this exemption. Furthermore, each UBS QPAM must make its
                Audit Report unconditionally available, electronically or otherwise,
                for examination upon request by any duly authorized employee or
                representative of the Department, other relevant regulators, and any
                fiduciary of a Covered Plan;
                 (10) Any engagement agreement with an auditor to perform the audit
                required under the terms of this exemption that is entered subsequent
                to the date of the judgment against UBS or UBS France by the French
                First Instance Court must be submitted to OED no later than two (2)
                months after the execution of such agreement;
                 (11) The auditor must provide the Department, upon request, for
                inspection and review, access to all the workpapers created and
                utilized in connection with the audit, provided such access and
                inspection is otherwise permitted by law; and
                 (12) UBS must notify the Department of a change in the independent
                auditor no later than two (2) months after the engagement of a
                substitute or subsequent auditor and must provide an explanation for
                the substitution or change including a description of any material
                disputes between the terminated auditor and UBS;
                 (j) As of the date of the judgment against UBS or UBS France by the
                French First Instance and throughout the Exemption Period, with respect
                to any arrangement, agreement, or contract between a UBS QPAM and a
                Covered Plan, the UBS QPAM agrees and warrants to Covered Plans:
                 (1) To comply with ERISA and the Code, as applicable with respect
                to such Covered Plan; to refrain from engaging in prohibited
                transactions that are not otherwise exempt (and to promptly correct any
                inadvertent prohibited transactions); and to comply with the standards
                of prudence and loyalty set forth in section 404 of ERISA with respect
                to each such ERISA-covered plan and IRA to the extent that section 404
                is applicable;
                 (2) To indemnify and hold harmless the Covered Plan for any actual
                losses resulting directly from: A UBS QPAM's violation of ERISA's
                fiduciary duties, as applicable, and of the prohibited transaction
                provisions of ERISA and the Code, as applicable; a breach of contract
                by the QPAM; or any claim arising out of the failure of such UBS QPAM
                to qualify for the exemptive relief provided by PTE 84-14 as a result
                of a violation of Section I(g) of PTE 84-14 other than the Convictions
                and the 2019 French Judgment Against UBS/UBS France. This condition
                applies only to actual losses caused by the UBS QPAM's violations.
                 (3) Not to require (or otherwise cause) the Covered Plan to waive,
                limit, or qualify the liability of the UBS QPAM for violating ERISA or
                the Code or engaging in prohibited transactions;
                 (4) Not to restrict the ability of such Covered Plan to terminate
                or withdraw from its arrangement with the UBS QPAM with respect to any
                investment in a separately managed account or pooled fund subject to
                ERISA and managed by such QPAM, with the exception of reasonable
                restrictions, appropriately disclosed in advance, that are specifically
                designed to ensure equitable treatment of all investors in a pooled
                fund in the event such withdrawal or termination may have adverse
                consequences for all other investors. In connection with any such
                arrangements involving investments in pooled funds subject to ERISA
                entered into after the effective date of PTE 2017-07, the adverse
                consequences must relate to a lack of liquidity of the underlying
                assets, valuation issues, or regulatory reasons that prevent the fund
                from promptly redeeming an ERISA-covered plan's or IRA's investment,
                and such restrictions must be applicable to all such investors and be
                effective no longer than reasonably necessary to avoid the adverse
                consequences;
                 (5) Not to impose any fees, penalties, or charges for such
                termination or withdrawal with the exception of reasonable fees,
                appropriately disclosed in advance, that are specifically designed to
                prevent generally recognized abusive investment practices or
                specifically designed to ensure equitable treatment of all investors in
                a pooled fund in the event such withdrawal or termination may have
                adverse consequences for all other investors, provided that such fees
                are applied consistently and in like manner to all such investors; and
                 (6) Not to include exculpatory provisions disclaiming or otherwise
                limiting liability of the UBS QPAM for a violation of such agreement's
                terms. To the extent consistent with Section 410 of ERISA, however,
                this provision does not prohibit disclaimers for liability caused by an
                error,
                [[Page 6172]]
                misrepresentation, or misconduct of a plan fiduciary or other party
                hired by the plan fiduciary who is independent of UBS and its
                affiliates, or damages arising from acts outside the control of the UBS
                QPAM;
                 (7) Within six months of the date of the judgment against UBS or
                UBS France by the French First Instance Court, each UBS QPAM must
                provide a notice of its obligations under this Section I(j) to each
                Covered Plan. For prospective Covered Plans that enter into a written
                asset or investment management agreement with a UBS QPAM on or after
                the date of the judgment, the UBS QPAM will agree to its obligations
                under this Section I(j) in an updated investment management agreement
                between the UBS QPAM and such clients or other written contractual
                agreement. This condition will be deemed met for each Covered Plan that
                received a notice pursuant to PTE 2016-17 and/or PTE 2017-07 that meets
                the terms of this condition. Notwithstanding the above, a UBS QPAM will
                not violate the condition solely because a Plan or IRA refuses to sign
                an updated investment management agreement.
                 (k) Within 60 days of the judgment against UBS or UBS France by the
                French First Instance Court, each UBS QPAM will provide a notice of the
                exemption, along with a separate summary describing the facts that led
                to the Convictions and the 2019 French Judgment Against UBS/UBS France
                (the Summary), which have been submitted to the Department, and a
                prominently displayed statement (the Statement) (collectively, Initial
                Notice) that the Convictions and, in the Department's view, the 2019
                French Judgment Against UBS/UBS France, each separately result in a
                failure to meet a condition in PTE 84-14 and PTE 2017-07, to each
                sponsor and beneficial owner of a Covered Plan, or the sponsor of an
                investment fund in any case where a UBS QPAM acts as a sub-advisor to
                the investment fund in which such ERISA-covered plan and IRA invests.
                Effective as of the date that is 60 days after the 2019 French Judgment
                Against UBS/UBS France Date, all Covered Plan clients that enter into a
                written asset or investment management agreement with a UBS QPAM after
                that date must receive a copy of the exemption, the Summary, and the
                Statement prior to, or contemporaneously with, the Covered Plan's
                receipt of a written asset management agreement from the UBS QPAM.
                Disclosures may be delivered electronically;
                 (l) The UBS QPAMs must comply with each condition of PTE 84-14, as
                amended, with the sole exception of the violations of Section I(g) of
                PTE 84-14 that are attributable to the Convictions and the 2019 French
                Judgment Against UBS/UBS France. If, during the Exemption Period, an
                entity within the UBS corporate structure is convicted of a crime
                described in Section I(g) of PTE 84-14, (other than the 2013
                Conviction, 2018 Conviction, and the 2019 French Judgment Against UBS/
                UBS France), including a conviction in a foreign jurisdiction for a
                crime described in Section I(g) of PTE 84-14, relief in this exemption
                would terminate immediately;
                 (m)(1) UBS continues to designate a senior compliance officer (the
                Compliance Officer) who will be responsible for compliance with the
                Policies and Training requirements described herein. The Compliance
                Officer must conduct a review for the Exemption Period (the Exemption
                Review),\16\ to determine the adequacy and effectiveness of the
                implementation of the Policies and Training. With respect to the
                Compliance Officer, the following conditions must be met:
                ---------------------------------------------------------------------------
                 \16\ Pursuant to PTE 2017-07 the Compliance Officer must conduct
                an exemption review (annual review) for each period corresponding to
                the audit periods set forth in Section I(i)(1) of PTE 2017-07 and
                the Compliance officer's written report submitted to the Department
                within three (3) months of the end of the period to which it
                relates. Accordingly, the final exemption review pursuant to PTE
                2017-07 must cover the period January 10, 2018 through the date of
                the judgment against UBS or UBS France by the French First Instance
                Court, and the corresponding Compliance Officer's written report
                must be submitted within three (3) months of the judgment.
                ---------------------------------------------------------------------------
                 (i) The Compliance Officer must be a professional who has extensive
                experience with, and knowledge of, the regulation of financial services
                and products, including under ERISA and the Code; and
                 (ii) The Compliance Officer must have a reporting line within UBS's
                Compliance and Operational Risk Control (C&ORC) function to the Head of
                Compliance and Operational Risk Control, Asset Management. The C&ORC
                function is organizationally independent of UBS's business divisions--
                including Asset Management, the Investment Bank, and Global Wealth
                Management--and is led by the head of Group Compliance, Regulatory and
                Governance, or another appropriate member of the Group Executive Board;
                 (2) With respect to the Exemption Review, the following conditions
                must be met:
                 (i) The Exemption Review includes a review of the UBS QPAMs'
                compliance with and effectiveness of the Policies and Training and of
                the following: Any compliance matter related to the Policies or
                Training that was identified by, or reported to, the Compliance Officer
                or others within the C&ORC function during the previous year; the most
                recent Audit Report issued pursuant to this exemption or PTE 2017-07;
                any material change in the relevant business activities of the UBS
                QPAMs; and any change to ERISA, the Code, or regulations related to
                fiduciary duties and the prohibited transaction provisions that may be
                applicable to the activities of the UBS QPAMs;
                 (ii) The Compliance Officer prepares a written report for the
                Exemption Review (an Exemption Report) that (A) summarizes his or her
                material activities during the Exemption Period; (B) sets forth any
                instance of noncompliance discovered during the Exemption Period, and
                any related corrective action; (C) details any change to the Policies
                or Training to guard against any similar instance of noncompliance
                occurring again; and (D) makes recommendations, as necessary, for
                additional training, procedures, monitoring, or additional and/or
                changed processes or systems, and management's actions on such
                recommendations;
                 (iii) In the Exemption Report, the Compliance Officer must certify
                in writing that to the best of his or her knowledge at the time: (A)
                The report is accurate; (B) the Policies and Training are working in a
                manner which is reasonably designed to ensure that the Policies and
                Training requirements described herein are met; (C) any known instance
                of noncompliance during the Exemption Period and any related correction
                taken to date have been identified in the Exemption Report; and (D) the
                UBS QPAMs have complied with the Policies and Training, and/or
                corrected (or are correcting) any known instances of noncompliance in
                accordance with Section I(h) above;
                 (iv) The Exemption Report must be provided to appropriate corporate
                officers of UBS and each UBS QPAM to which such report relates, and to
                the head of compliance and the General Counsel (or their functional
                equivalent) of the relevant UBS QPAM; and the report must be made
                unconditionally available to the independent auditor described in
                Section I(i) above;
                 (v) The Exemption Review, including the Compliance Officer's
                written Exemption Report, must be completed within three (3) months
                following the end of the period to which it relates;
                 (n) UBS imposes its internal procedures, controls, and protocols on
                UBS Securities Japan to: (1) Reduce the
                [[Page 6173]]
                likelihood of any recurrence of conduct that that is the subject of the
                2013 Conviction, and (2) comply in all material respects with the
                Business Improvement Order, dated December 16, 2011, issued by the
                Japanese Financial Services Authority;
                 (o) UBS complies in all material respects with the audit and
                monitoring procedures imposed on UBS by the U.S. Commodity Futures
                Trading Commission Order, dated December 19, 2012;
                 (p) Each UBS QPAM will maintain records necessary to demonstrate
                that the conditions of this exemption have been met, for six (6) years
                following the date of any transaction for which such UBS QPAM relies
                upon the relief in the exemption;
                 (q) During the Exemption Period, UBS must: (1) Immediately disclose
                to the Department any Deferred Prosecution Agreement (a DPA) or Non-
                Prosecution Agreement (an NPA) with the U.S. Department of Justice,
                entered into by UBS or any of its affiliates (as defined in Section
                VI(d) of PTE 84-14) in connection with conduct described in Section
                I(g) of PTE 84-14 or section 411 of ERISA; and (2) immediately provides
                the Department any information requested by the Department, as
                permitted by law, regarding the agreement and/or conduct and
                allegations that led to the agreement;
                 (r) Within six months from the date of the judgment against UBS or
                UBS France by the French First Instance Court, each UBS QPAM, in its
                agreements with, or in other written disclosures provided to Covered
                Plans, will clearly and prominently inform Covered Plan clients of
                their right to obtain a copy of the Policies or a description (Summary
                Policies) which accurately summarizes key components of the UBS QPAM's
                written Policies developed in connection with this exemption. If the
                Policies are thereafter changed, each Covered Plan client must receive
                a new disclosure within six (6) months following the end of the
                calendar year during which the Policies were changed.\17\ With respect
                to this requirement, the description may be continuously maintained on
                a website, provided that such website link to the Policies or Summary
                Policies is clearly and prominently disclosed to each Covered Plan; and
                ---------------------------------------------------------------------------
                 \17\ In the event the Applicant meets this disclosure
                requirement through Summary Policies, changes to the Policies shall
                not result in the requirement for a new disclosure unless, as a
                result of changes to the Policies, the Summary Policies are no
                longer accurate.
                ---------------------------------------------------------------------------
                 (s) A UBS QPAM will not fail to meet the terms of this exemption,
                solely because a different UBS QPAM fails to satisfy a condition for
                relief described in Sections I(c), (d), (h), (i), (j), (k), (l), (p),
                or (r); or if the independent auditor described in Section I(i) fails a
                provision of the exemption other than the requirement described in
                Section I(i)(11), provided that such failure did not result from any
                actions or inactions of UBS or its affiliates.
                Section II. Definitions
                 (a) The term ``Convictions'' means the 2013 Conviction and the 2017
                Conviction. The term ``2013 Conviction'' means the judgment of
                conviction against UBS Securities Japan Co. Ltd. in case number 3:12-
                cr-00268-RNC in the U.S. District Court for the District of Connecticut
                for one count of wire fraud in violation of Title 18, United States
                Code, sections 1343 and 2 in connection with submission of YEN London
                Interbank Offered Rates and other benchmark interest rates. The term
                ``2018 Conviction'' means the judgment of conviction against UBS in
                case number 3:15-cr-00076-RNC in the U.S. District Court for the
                District of Connecticut for one count of wire fraud in violation of
                Title 18, United States Code, Sections 1343 and 2 in connection with
                UBS's submission of Yen London Interbank Offered Rates and other
                benchmark interest rates between 2001 and 2010. For all purposes under
                this exemption, ``conduct'' of any person or entity that is the
                ``subject of the Convictions'' encompasses any conduct of UBS and/or
                their personnel, that is described in (i) Exhibit 3 to the Plea
                Agreement entered into between UBS and the Department of Justice
                Criminal Division, on May 20, 2015, in connection with case number
                3:15-cr-00076-RNC, and (ii) Exhibits 3 and 4 to the Plea Agreement
                entered into between UBS Securities Japan and the Department of Justice
                Criminal Division, on December 19, 2012, in connection with case number
                3:12-cr-00268-RNC;
                 (b) The term ``2019 French Judgment Against UBS/UBS France''
                includes any adverse judgment against UBS or UBS France regarding case
                Number 1105592033. For all purposes under this exemption, ``conduct''
                of any person or entity that is the ``criminal conduct that is the
                subject of the 2019 French Judgment Against UBS/UBS France'', includes
                any conduct of UBS, its affiliates, or UBS France and/or their
                personnel that is described in any such judgment;
                 (c) The term ``Covered Plan'' means a plan subject to Part IV of
                Title I of ERISA (an ``ERISA-covered plan'') or a plan subject to
                section 4975 of the Code (an ``IRA''), in each case, with respect to
                which a UBS QPAM relies on PTE 84-14, or with respect to which a UBS
                QPAM (or any UBS affiliate) has expressly represented that the manager
                qualifies as a QPAM or relies on the QPAM class exemption (PTE 84-14).
                A Covered Plan does not include an ERISA-covered plan or IRA to the
                extent the UBS QPAM has expressly disclaimed reliance on QPAM status or
                PTE 84-14 in entering into a contract, arrangement, or agreement with
                the ERISA-covered plan or IRA.
                 (d) The term ``FX Misconduct'' means the conduct engaged in by UBS
                personnel described in Exhibit 1 of the Plea Agreement (Factual Basis
                for Breach) entered into between UBS and the Department of Justice
                Criminal Division, on May 20, 2015 in connection with Case Number 3:15-
                cr-00076-RNC filed in the U.S. District Court for the District of
                Connecticut.
                 (e) The term ``UBS QPAM'' means UBS Asset Management (Americas)
                Inc., UBS Realty Investors LLC, UBS Hedge Fund Solutions LLC, UBS
                O'Connor LLC, and any future entity within the Asset Management or the
                Global Wealth Management Americas U.S. divisions of UBS that qualifies
                as a ``qualified professional asset manager'' (as defined in Section
                VI(a) of PTE 84-14) \18\ and that relies on the relief provided by PTE
                84-14, and with respect to which UBS is an ``affiliate'' (as defined in
                Part VI(d) of PTE 84-14). The term ``UBS QPAM'' excludes UBS securities
                Japan, the entity implicated in the criminal conduct that is the
                subject of the 2013 Conviction, UBS, the entity implicated in the
                criminal conduct that is the subject of the 2018 Conviction and
                implicated in the criminal conduct of UBS and UBS France that is the
                subject of the 2019 French Judgment Against UBS/UBS France, and UBS
                France, the entity implicated in the criminal conduct of UBS and UBS
                France that is the subject of the 2019 French Judgment Against UBS/UBS
                France.
                ---------------------------------------------------------------------------
                 \18\ In general terms, a QPAM is an independent fiduciary that
                is a bank, savings and loan association, insurance company, or
                investment adviser that meets certain equity or net worth
                requirements and other licensure requirements and that has
                acknowledged in a written management agreement that it is a
                fiduciary with respect to each plan that has retained the QPAM.
                ---------------------------------------------------------------------------
                 (f) The term ``UBS'' means UBS AG.
                 (g) The term ``UBS France'' means ``UBS (France) S.A.,'' a wholly-
                owned subsidiary of UBS incorporated under the laws of France.
                 (h) The term ``UBS Securities Japan'' means UBS Securities Japan
                Co. Ltd, a wholly-owned subsidiary of UBS incorporated under the laws
                of Japan.
                [[Page 6174]]
                 (i) All references to ``the date of the judgment by the French
                First Instance Court'' refer to any judgment against UBS or UBS France
                in case number 1105592033;
                 (j) The term ``Exemption Period'' means one year beginning on the
                date of the French First Instance judgment against UBS or UBS France
                regarding case Number 1105592033;
                 (k) The term ``Plea Agreement'' means the Plea Agreement (including
                Exhibits 1 and 3 attached thereto) entered into between UBS and the
                Department of Justice Criminal Division, on May 20, 2015 in connection
                with Case Number 3:15-cr-00076-RNC filed in the US District Court for
                the District of Connecticut.
                 Effective Date: This exemption will be in effect for one year from
                the date of the judgment in the French First Instance Court against UBS
                and/or UBS France in case number 1105592033.
                 Signed at Washington, DC, this 21st day of February, 2019.
                Lyssa Hall,
                Director, Office of Exemption Determinations Employee Benefits Security
                Administration, U.S. Department of Labor.
                [FR Doc. 2019-03339 Filed 2-22-19; 11:15 am]
                 BILLING CODE 4510-29-P
                

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