Ranking Member Cassidy Blasts Proposed D…

WASHINGTON – Today, U.S. Senator Bill Cassidy, M.D. (R-LA), ranking member of the Senate Health, Education, Labor and Pensions (HELP) Committee, blasted the Department of Labor’s (DOL) proposed Qualified Professional Asset Manager (QPAM) policy that allows the Chinese Communist Party (CCP) to weaponize its criminal enforcement power against American citizens and businesses for political purposes.  

Currently, under the QPAM exemption, companies who share the same investment advisor are allowed to engage in business activities as long as they adequately avoid any potential conflicts of interest. Without this policy, it is almost impossible for investment advisors to serve multiple retirement plans, as many transactions would otherwise be prohibited under the Employee Retirement Income Security Act (ERISA). The QPAM exemption offers companies the freedom to choose an investment advisor based on which advisor best serves the interests of the plan participants and can maximize return on investments. 

DOL recently proposed new amendments to the QPAM exemption, including a provision that takes away an advisor’s exemption if they have been convicted of a financial crime by other countries, including by adversarial governments like the CCP. Additionally, under this new policy, an agreement settled out of court between governments and businesses would be considered a conviction by DOL, meaning that American asset managers and businesses would lose QPAM status and be financially harmed even if they are not indicted or found guilty in court. 

The CCP has been known to use threats of financial crimes against Americans and American businesses that support democracy in Hong Kong. In 2022, individuals attempted to bribe a federal official on behalf of the CCP to obtain the tax returns of a U.S.-based pro-democracy activist with the intent to threaten them with criminal allegations.  

Cassidy raised serious concerns that this new DOL policy would empower the CCP to use U.S. law to fraudulently target American businesses and threaten individuals who oppose the CCP regime. He also raised concerns that the new policy would limit retirement investment options for companies, threatening Americans’ retirement security as a result of CCP political persecution. 

“I am particularly alarmed that DOL proposes to consider convictions from hostile countries like China, and treat deferred prosecution agreements and non-prosecution agreements as convictions,” wrote Dr. Cassidy. “DOL’s proposal uses the U.S. legal system to help China suppress its own citizens and harm the American economy by facilitating foreign targeting of American citizens, residents, and businesses.” 

Read the full letter here and below. 

Dear Acting Secretary Su:

I write to oppose the Department of Labor’s (DOL) poorly conceived Proposed Amendments to the Prohibited Transaction Class Exemption 84-14, (the QPAM Exemption) (EBSA-2022-0008) (“Proposed Amendments”). As you know, the investment manager of any investment plan that holds assets subject to the Employee Retirement Income Security Act (ERISA) is considered a fiduciary as it concerns the plan. Section 406(a) of ERISA imposes significant restrictions on fiduciaries that can hamstring their ability to perform necessary investment functions for these ERISA plans unless an exemption is available.  

The QPAM Exemption is one of the most commonly used exemptions. While it continues to block fiduciary “self-dealing” transactions, it facilitates a wide variety of transactions that offer investment options in the best interest of the participants. Without the exemption, such investment options would be artificially limited, thus harming participants. This is crucial for ensuring an efficient and cost-effective retirement system. The current system is efficient and provides a high degree of certainty to these fundamental actors and transactions.

QPAMs are a key component of the asset management ecosystem. Currently, the QPAM Exemption requires exemption seekers to qualify as a QPAM; that they acknowledge in a written management agreement they are a fiduciary with respect to each investing plan; and, that investments are negotiated and decided upon by the QPAM without being subject to the approval or veto of another person. The QPAM Exemption is not available in cases where the counterparty has the ability to appoint or terminate the investment manager; the transaction occurs with an ERISA plan investor whose assets account for over 20% of the total client assets managed by the manager; or, the QPAM is seeking to transact with itself.

The Proposed Amendments put forward a number of concerning policy adjustments. For example, DOL proposes prohibiting many routine investment interactions by excluding planned, negotiated, or initiated transactions by any party-in-interest.^[1] These are common transactions that are core to the retirement business and can keep costs down for savers while ensuring an efficient retirement system.

However, the Proposed Amendments also allow foreign interference in this system. In an especially troubling piece of the proposal, DOL explicitly includes foreign convictions in its list of convictions that could disqualify a QPAM from this exemption. Specifically, the proposal states that “‘[convictions] by a foreign court of competent jurisdiction for any crime . . . however denominated by the laws of the relevant foreign government, that is substantially equivalent to’ one of the U.S. federal or state crimes identified in subsection VI(r)(1)” would trigger ineligibility.

These adjustments would amount to additional costs that may be passed on to consumers. Under the proposal, retirement plans would almost immediately lose their investment manager, who would be barred from engaging in any new transactions. This would be very disruptive for the plan and its participants, and would trigger a costly and lengthy effort to find a new investment manager, which can take around two years, according to experts.^[2] Firms that lose their regular QPAM exemption status and have to apply for an individual QPAM exemption could face significant additional compliance costs. Firms remaining in compliance would also face additional costs maintaining their status.

I am particularly alarmed that DOL proposes to consider convictions from hostile countries like China, and treat deferred prosecution agreements and non-prosecution agreements as convictions.

As you are no doubt aware, the Chinese Communist Party (CCP) frequently uses trumped up financial crimes to attack dissidents and those who support the revival of democratic norms in Hong Kong. Unfortunately, these practices have spilled onto American soil. The Chinese Government’s Operation Foxhunt and Operation Skynet have targeted detractors by setting them up for financial crimes. On July 6, 2022, Fan Liu and Matthew Ziburis were charged for conspiring to bribe a federal official in connection with their scheme to obtain the tax returns of a pro-democracy activist residing in the United States.^[3]

This matter could be further compounded if the Chinese start using deferred and non-prosecution agreements.^[4] These agreements allow governments to settle with counterparties without having to indict them. Under DOL’s proposal, which for the first time would allow for the explicit consideration of these agreements, a company or employee would not even need to be found guilty of a crime to lose the QPAM status. They would now be subject to a CCP style-shakedown, which could then harm American investors.

DOL’s proposal uses the U.S. legal system to help China suppress its own citizens and harm the American economy by facilitating foreign targeting of American citizens, residents, and businesses. Given the serious nature of these issues, I request your response to the following questions, on a question-by-question basis, by December 14, 2023:

1. Why does DOL propose to recognize foreign convictions when ERISA assets are required to be held in the United States?

2. Does DOL plan to recognize foreign convictions from foreign adversaries? If so, which ones?

3. What safeguards did DOL put in place to ensure that political prosecutions are not used against American businesses?

4. Did DOL consult with the Department of Justice (DOJ) and the Securities and Exchange Commission (SEC) about such safeguards?

1. If so, on what date[s]?
2. What was the nature of agency feedback?
3. Please provide all copies of any internal memoranda summarizing DOJ or the SEC’s feedback.

5. Did DOL consult the Department of State and other offices with expertise in foreign affairs governments about the proposal?

1. If so, on what date[s]?
2. What was the nature of agency feedback?
3. Please provide all copies of any internal memoranda summarizing the Department of State’s feedback.

Thank you for your prompt attention to this matter.

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