Credit Suisse Waiver and Too Big to Bar

Last year, Credit Suisse AG said it will plead guilty to charges that it aided and assisted U.S. taxpayers in filing false income tax returns and other documents with the Internal Revenue Service (IRS).

But the giant financial firm has to wrap up some loose ends.


It turns out that the Department of Labor has a “bad actor” rule that automatically disqualifies institutions from claiming the status of qualified professional asset manager (QPAM) — those who advise pension funds and other investment funds.

Credit Suisse wants to continue in the business — and it has asked the Department of Labor to grant it a waiver from disqualification.

The Department has set a hearing on the waiver issue for January 15, 2015.

As turns out, automatic disqualification in this area is not automatic disqualification.

The Department of Labor is permitted to waive the disqualification, provided that it finds that the waiver is “administratively feasible, in the interests of the plan and of its participants and beneficiaries, and protective of the rights of participants and beneficiaries of the plan.”

In an October 2014 letter to the Department of Labor calling for the hearing, three Democratic members of Congress — Maxine Waters, Stephen Lynch and George Miller — said that since 1997, the Department has granted waivers for all 23 firms seeking individual waivers — and that included a waiver for UBS, after a Japanese subsidiary pled guilty.

“The beneficial status of qualified professional asset manager should be reserved for institutions that have shown a commitment to maintaining a high standard of integrity via compliance with the law,” they wrote.  “When the Department simply waives the disqualification provisions on a seemingly automatic basis, it undermines firms’ incentives to obey the law.”

Credit Suisse will be represented at the hearing by a number of senior executives and by Stephen Saxon of the Groom Law Group in Washington, D.C.

Eight to ten citizens will appear to argue that Credit Suisse be denied the waiver.

Public Citizen’s Bartlett Naylor will argue that “firms that engage in criminal activity should face real consequences.”

“Where those consequences are excused, the firm is invited to become a repeat offender, and the deterrence effect for other firms is nullified,” Naylor wrote in a letter last year to the Department. “Pension fund beneficiaries are especially vulnerable to Wall Street abuse because their savings may be managed by firms they do not even choose, let alone control. As overseer of the nation’s ERISA-governed funds, the Department of Labor bears the heavy responsibility of policing the integrity of the pension fund management industry. The DOL must apply all its tools to achieve this lofty goal. They should be used, not routinely discarded.”

Others, like Global Financial Integrity legal counsel Heather Lowe and James Henry, a former chief economist at McKinsey & Co., will argue that the criminal conviction is only the most recent of Credit Suisse’ bad acts — bad acts that resulted in “deferred prosecution agreements, fines, monitoring, and other activity by U.S. and foreign regulators that indicate serious problems with the conduct of their financial activities,” as Lowe put it in a letter to the Department. (Lowe attaches to her letter a Credit Suisse corporate rap sheet — compiled by Philip Mattera of the Corporate Research Project.)

While the Department of Labor may grant the waiver to Credit Suisse, others have not looked as kindly on the criminal wrongdoing.

In May, following Credit Suisse’s guilty plea, the Employees Retirement System of Texas announced that it suspended all trading with Credit Suisse.

According to a spokesperson of the pension plan, “We have a policy against hiring firms convicted of felonies.”

The members of Congress — Waters, Lynch and Miller — said that “in light of these concerns, it is incumbent upon the Department to seriously consider whether granting a waiver in this case is truly warranted, and if so, whether any conditions of the waiver are merely best business practices that should have already been in place, rather than conditions that would adequately deter future criminal misconduct.”

“In doing so, the Department must give due regard to the views of pension funds, retirees, taxpayers, and the American public and their interest in seeing greater accountability and integrity among our nation’s financial institutions,” they wrote.

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