The other articles of the convention are listed on the UNCAC Chapter V page.

Article Content

1. Without prejudice to article 14 of this Convention, each State Party shall take such measures as may be necessary, in accordance with its domestic law, to require financial institutions within its jurisdiction to verify the identity of customers, to take reasonable steps to determine the identity of beneficial owners of funds deposited into high-value accounts and to conduct enhanced scrutiny of accounts sought or maintained by or on behalf of individuals who are, or have been, entrusted with prominent public functions and their family members and close associates. Such enhanced scrutiny shall be reasonably designed to detect suspicious transactions for the purpose of reporting to competent authorities and should not be so construed as to discourage or prohibit financial institutions from doing business with any legitimate customer.
2. In order to facilitate implementation of the measures provided for in paragraph 1 of this article, each State Party, in accordance with its domestic law and inspired by relevant initiatives of regional, interregional and multilateral organizations against money-laundering, shall:
   1. (a) Issue advisories regarding the types of natural or legal person to whose accounts financial institutions within its jurisdiction will be expected to apply enhanced scrutiny, the types of accounts and transactions to which to pay particular attention and appropriate account-opening, maintenance and record-keeping measures to take concerning such accounts; and
   2. (b) Where appropriate, notify financial institutions within its jurisdiction, at the request of another State Party or on its own initiative, of the identity of particular natural or legal persons to whose accounts such institutions will be expected to apply enhanced scrutiny, in addition to those whom the financial institutions may otherwise identify.
3. In the context of paragraph 2 (a) of this article, each State Party shall implement measures to ensure that its financial institutions maintain adequate records, over an appropriate period of time, of accounts and transactions involving the persons mentioned in paragraph 1 of this article, which should, as a minimum, contain information relating to the identity of the customer as well as, as far as possible, of the beneficial owner.
   
4. With the aim of preventing and detecting transfers of proceeds of offences established in accordance with this Convention, each State Party shall implement appropriate and effective measures to prevent, with the help of its regulatory and oversight bodies, the establishment of banks that have no physical presence and that are not affiliated with a regulated financial group. Moreover, States Parties may consider requiring their financial institutions to refuse to enter into or continue a correspondent banking relationship with such institutions and to guard against establishing relations with foreign financial institutions that permit their accounts to be used by banks that have no physical presence and that are not affiliated with a regulated financial group.
   
5. Each State Party shall consider establishing, in accordance with its domestic law, effective financial disclosure systems for appropriate public officials and shall provide for appropriate sanctions for non-compliance. Each State Party shall also consider taking such measures as may be necessary to permit its competent authorities to share that information with the competent authorities in other States Parties when necessary to investigate, claim and recover proceeds of offences established in accordance with this Convention.
   
6. Each State Party shall consider taking such measures as may be necessary, in accordance with its domestic law, to require appropriate public officials having an interest in or signature or other authority over a financial account in a foreign country to report that relationship to appropriate authorities and to maintain appropriate records related to such accounts. Such measures shall also provide for appropriate sanctions for non-compliance.
   

Article Comment

Source: UNCAC Legislative Guide

Summary of main requirements

678. In accordance with article 52, States parties must: (a) Require financial institutions: (i) To verify the identity of customers; (ii) To take reasonable steps to determine the identity of beneficial owners of funds deposited into high-value accounts; (iii) To scrutinize accounts sought or maintained by or on behalf of individuals entrusted with prominent public functions, their family members and close associates; (iv) To report to competent authorities about suspicious transactions detected through the above-mentioned scrutiny (art. 52, para. 1);1 (b) Draw on relevant initiatives of regional, interregional and multilateral organizations against money-laundering: (i) To issue advisories regarding the types of persons for whose accounts enhanced scrutiny will be expected, the types of accounts and transactions to which particular attention should be paid and account-opening, maintenance and record-keeping measures for such accounts (art. 52, para. 2 (a)); (ii) To notify financial institutions of the identity of particular persons for whose accounts enhanced scrutiny will be expected (art. 52, para. 2, (b)); (c) Ensure that financial institutions maintain adequate records of accounts and transactions involving the persons mentioned in paragraph 1 of article 52, including information on the identity of the customer and the beneficial owner (art. 52, para. 3);2 (d) Prevent the establishment of banks that have no physical presence and that are not affiliated with a regulated financial group (art. 52, para. 4).

679. The implementation of these provisions may require legislation.3

680. States parties are required to consider: (a) Establishing financial disclosure systems for appropriate public officials and appropriate sanctions for non-compliance (art. 52, para. 5); (b) Permitting their competent authorities to share that information with authorities in other States parties when necessary to investigate, claim and recover proceeds of corruption offences (art. 52, para. 5);4 (c) Requiring appropriate public officials with an interest in or control over a financial account in a foreign country: (i) To report that relationship to appropriate authorities; (ii) To maintain appropriate records related to such accounts; (iii) To provide for sanctions for non-compliance (art. 52, para. 6).

681. Finally, States parties may wish to consider requiring financial institutions: (a) To refuse to enter into or continue a correspondent banking relationship with banks that have no physical presence and that are not affiliated with a regulated financial group; and (b) To guard against establishing relations with foreign financial institutions that permit their accounts to be used by banks that have no physical presence and that are not affiliated with a regulated financial group (art. 52, para. 4).

682. The implementation of these provisions may require legislation. Provisions in this article are innovative and take many States parties into new territory with few precedents to draw on.

Mandatory requirements: obligation to take legislative or other measures

683. Article 52 builds on the prevention measures of chapter II, especially those of article 14 regarding money-laundering, and specifies a series of measures States parties must put in place in order better to prevent and detect the transfers of crime proceeds. Paragraphs 1 and 2 address the cooperation and interaction between national authorities and financial institutions.

684. Under article 52, paragraph 1, without prejudice to article 14, States parties are required to take necessary measures, in accordance with their domestic law, to oblige financial institutions within their jurisdiction: (a) To verify the identity of customers; (b) To take reasonable steps to determine the identity of beneficial owners of funds deposited into high-value accounts; and (c) To conduct enhanced scrutiny of accounts sought or maintained by or on behalf of individuals who are, or have been, entrusted with prominent public functions and their family members and close associates.5

685. These provisions must be seen in the context of the more general regulatory and supervisory regime they must establish against money-laundering, in which customer identification, record-keeping and reporting requirements feature prominently (see also art. 14, para. 1 (a)).

686. The duty of financial institutions to know their customers is not new, but part of long-standing internationally accepted standards of due diligence and prudential management of financial institutions.6

687. Offenders often hide their transactions and criminal proceeds behind false names or those of third parties—the duty is to make reasonable efforts to determine the beneficial owner of funds entering high-value accounts. The term “high value” needs to be approached individually in the context of each State party.

688. Such enhanced scrutiny must be reasonably designed to detect suspicious transactions for the purpose of reporting to competent authorities and should not be so construed as to discourage or prohibit financial institutions from doing business with any legitimate customer. According to an interpretative note, the words “discourage or prohibit financial institutions from doing business with any legitimate customer” are understood to include the notion of not endangering the ability of financial institutions to do business with legitimate customers (A/58/422/Add.1, para. 51).

689. In order to facilitate implementation of these measures, States parties, in accordance with their domestic law and inspired by relevant initiatives of regional, interregional and multilateral organizations against money-laundering, are required: (a) To issue advisories regarding the types of natural or legal person to whose accounts financial institutions within their jurisdiction will be expected to apply enhanced scrutiny; the types of accounts and transactions to which particular attention should be paid; and appropriate account-opening, maintenance and record-keeping measures to take concerning such accounts; (b) Where appropriate, to notify financial institutions within their jurisdiction, at the request of another State party or on their own initiative, of the identity of particular natural or legal persons to whose accounts such institutions will be expected to apply enhanced scrutiny, in addition to those whom the financial institutions may otherwise identify.

690. Such practices are likely to enhance the effectiveness and consistency with which financial institutions engage in their due diligence and customer identification activities. In addition, this sort of guidance from national authorities is particularly helpful to financial institutions in their efforts to comply with the regulatory requirements. As an interpretative note indicates, the obligation to issue advisories may be fulfilled by the State party or by its financial oversight bodies (A/58/422/Add.1, para. 52).

691. Another interpretative note indicates that paragraphs 1 and 2 of article 52 should be read together and that the obligations imposed on financial institutions may be applied and implemented with due regard to particular risks of money-laundering. In that regard, States parties may guide financial institutions on appropriate procedures to apply and whether relevant risks require application and implementation of these provisions to accounts of a particular value or nature, to its own citizens as well as to citizens of other States and to officials with a particular function or seniority. The relevant initiatives of regional, interregional and multilateral organizations against money-laundering shall be those referred to in the interpretative note to article 14 (A/58/422/Add.1, para. 49).7

692. It is emphasized that the above measures apply both to public officials in the State where the scrutiny occurs and to public officials in other jurisdictions. This is essential not only for the purposes of prevention and transparency, but also for the facilitation of investigations, asset identification and return that may take place in the future.8

693. In accordance with article 52, paragraph 3, States parties are required to implement measures ensuring that their financial institutions maintain adequate records, over an appropriate period of time, of accounts and transactions involving the persons mentioned in paragraph 1. At a minimum, these records should contain information relating to the identity of the customer as well as, as far as possible, of the beneficial owner.9

694. The definition of the period of time over which records must be maintained is left to the States parties. In this respect, it is important to bear in mind that in several significant cases, corrupt practices occurred over a very long time. The availability of financial records is essential for subsequent investigations, as well as asset identification and return.

695. The implementation of these provisions may require legislation regarding bank secrecy, confidentiality, data protection and privacy issues. Financial institutions should not be placed in the position where compliance with rules and requirements in one jurisdiction raises conflicts with duties they have in another State.

696. In accordance with article 52, paragraph 4, and with the aim of preventing and detecting transfers of proceeds of offences established in accordance with this Convention, States parties are required to implement appropriate and effective measures to prevent, with the help of their regulatory and oversight bodies, the establishment of banks that have no physical presence and that are not affiliated with a regulated financial group.

697. Two interpretative notes clarify the terms of this paragraph further. The first one indicates that the term “physical presence” is understood to mean “meaningful mind and management” located within the jurisdiction. The simple existence of a local agent or low-level staff would not constitute physical presence. Management is understood to include administration, that is, books and records (A/58/422/Add.1, para. 54). 698. The second interpretative note indicates that banks that have no physical presence and are not affiliated with a regulated financial group are generally known as “shell banks”. (A/58/422/Add.1, para. 55). 699. This provision may also require legislation with respect to the conditions under which a financial institution may operate.10 This paragraph also contains some optional provisions discussed below.

Optional requirements: obligation to consider

700. Article 52, paragraphs 5 and 6, require that States parties consider additional financial disclosure obligations on the part of “appropriate public officials”, in accordance with their domestic law. Under paragraph 5, States must consider the establishment of effective financial disclosure systems and provide for appropriate sanctions in case of non-compliance.11 It is left to the States parties to determine which public officials would be covered under such systems and how financial disclosure would thereby become more effective. Once such systems are introduced, however, there must be appropriate sanctions against violations of reporting duties by public officials to ensure compliance.

701. Paragraph 5 further requires that States parties consider taking necessary measures to permit their competent authorities to share financial disclosure information with the competent authorities in other States parties when necessary to investigate, claim and recover proceeds of offences established in accordance with the Convention against Corruption (see also closely related arts. 43, 46, 48, 56 and 57). Legislation relative to bank secrecy and privacy issues may be required for the implementation of these provisions.

702. In the same spirit of encouraging financial disclosure and transparency, States parties must consider taking necessary measures to require appropriate public officials having an interest in or signature or other authority over a financial account in a foreign country to report that relationship to appropriate authorities and to maintain appropriate records related to such accounts (art. 52, para. 6). As with the previous provisions, if States parties decide to introduce such measures, they must also provide for appropriate sanctions for noncompliance.

Optional measures: measures States parties may wish to consider

703. As mentioned above, article 52, paragraph 4, mandates the adoption of measures regarding the establishment of banks that have no physical presence and that are not affiliated with a regulated financial group, that is, entities known as “shell banks”. The aim of this provision is to promote the prevention and detection of transfers of proceeds from offences established in accordance with the Convention against Corruption.

704. Under the same paragraph, States parties may wish to consider requiring their financial institutions: (a) To refuse to enter into or continue a correspondent banking relationship with “shell banks”; (b) To guard against establishing relations with foreign financial institutions that permit their accounts to be used by “shell banks”.

705. Legislation or amendment of existing laws may be required to implement these provisions (for example, rules specifying for their financial institutions the conditions or criteria they should use to determine whether or not they can enter into or maintain relationships with “shell banks”). (TODO: add reference to the source of this document, Legislative Guide)

Further Information

See also the note 'technical assistance' prepared by the UN Secretariat for the First Conferences of States Parties to the United Nations Convention Against Corruption.