(Bloomberg) -- The U.S. Labor Department is one regulator that hasn’t immediately fallen into line to give Credit Suisse Group AG a pass following its May 19 guilty plea for helping Americans evade taxes.

Now Credit Suisse needs a waiver from the Labor Department to retain its status as a qualified professional asset manager, or QPAM. Otherwise, it will automatically lose that privilege after its Aug. 12 sentencing. Under pressure from prosecutors, the Federal Reserve Bank of New York and the Securities and Exchange Commission have already shown the bank some leniency.

The Labor Department, which oversees $7.9 trillion in pensions, “is not a rubber stamp,” said Michael Trupo, a spokesman. “This is a very serious matter, and we are closely monitoring the situation.” Zurich-based Credit Suisse, Switzerland’s second-largest bank, declined to disclose the amount of public and private pension assets that could be affected by the ruling.

At least six large banks have won Labor Department waivers to keep their QPAM designations in the past 15 years, including Switzerland’s largest bank, UBS AG. Credit Suisse’s guilty plea was entered by its main bank unit and reflects a harsher stance by prosecutors, who also are pressing BNP Paribas SA to plead guilty in a probe of sanctions violations, a person familiar with the matter has said.


Although fallout after Credit Suisse’s guilty plea has been contained, the Employees Retirement System of Texas said May 21 it was suspending trading with the bank because of a policy against hiring firms convicted of felonies. Credit Suisse was a broker-dealer for the retirement fund and didn’t have assets under management, said Mary Jane Wardlow, a spokeswoman for the Texas system. A few large pension funds have said they also are reviewing their relationships with the bank.

Prosecutors got assurances from regulators including the Federal Reserve that the bank would be allowed to continue business in the U.S. after its conviction, people familiar with the talks have said. The Labor Department declined to comment on whether it was pressed by prosecutors for such a promise.

“Denying QPAM relief could have very drastic implications” for a bank’s dealings with pension funds, said Shannon Barrett, an attorney with O’Melveny & Myers in Washington. “It would be difficult to do business without it and to attract clients willing to engage you.”


During Credit Suisse’s plea hearing, bank attorney Christopher Wray asked the court for 90 days to pursue regulatory waivers and singled out the Labor Department. Credit Suisse filed a request that day with department officials.

“We continue to work with the Department of Labor and are hopeful that we will receive an exemption in a timely fashion,” said Suzanne Fleming, a spokeswoman for the company. Chief Financial Officer David Mathers told investors May 28 that regulators have been supportive of the firm’s efforts to continue business in the U.S.

The Labor Department has granted every QPAM request since at least 2000, Trupo said, however, most of those cases related to potential conflicts of interest rather than to wrongdoing.

“We cannot predict how long it will take to make a decision on the request,” Trupo said.


Credit Suisse has so far avoided other regulatory bans. The New York Fed said last month that the bank can continue handling government securities as a so-called primary dealer. The SEC let the firm continue as an investment adviser while the agency considers a permanent waiver.

Hundreds of asset managers hold the QPAM designation, helping them to manage pension funds’ investments involving real estate, private equity and other relatively illiquid assets that can otherwise be blocked by potential “party in interest” conflicts. Firms that commit certain crimes are disqualified as a QPAM without a waiver.

The Labor Department granted UBS’s waiver request last year after a unit in Japan pleaded guilty to wire fraud as part of a global resolution of allegations it manipulated benchmark interest rates.

When granting waivers, the Labor Department looks at whether the firm’s money-management arm was involved in crime or whether misconduct related to managing assets, said Lawrence Hass, a lawyer at Paul Hastings LLP in New York.

“Credit Suisse would seem to fit into a pattern in which the Department of Labor would grant an exemption,” he said.

The Labor Department may attach strings when granting requests. For UBS, it required the bank to comply with provisions of annual audits for five years, send pension clients a description of the case and “prominently” state that the conviction jeopardized its QPAM status.

“There are always conditions,” says Labor Department spokesman Trupo. “We review these requests case-by-case.”

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