CAIIB BRBL Module B UNIT 8 MCQ – The Prevention of Money Laundering Act, 2002

Correct Answer: B. To prevent money laundering and provide for confiscation of property related to it. The Act was specifically enacted to combat money laundering activities and to enable the seizure of assets derived from or involved in such illicit operations.

Correct Answer: C. Chapter IV. This chapter is dedicated to outlining the duties and responsibilities that banking companies, financial institutions, and intermediaries must adhere to under the Act to prevent the misuse of the financial system for money laundering.

Correct Answer: C. It enlarged the definition by including activities such as concealment, acquisition, possession, and use of proceeds of crime. This amendment broadened the understanding of money laundering to cover a wider range of actions connected to the proceeds of criminal activities.

Correct Answer: B. Ten thousand rupees. The amended Section 13(2)(d) specifies that the fine imposed on a defaulting reporting entity, its designated director, or any of its employees shall not be less than ten thousand rupees for each instance of non-compliance.

Correct Answer: C. A Director on their Boards as “Designated Director”. This nomination is recommended to ensure that there is a specific high-level individual responsible for overseeing compliance with the obligations stipulated under the amended PMLA.

Correct Answer: D. Any direct or indirect attempt, assistance, involvement in processes like concealment, possession, acquisition, use, or projecting/claiming proceeds of crime as untainted property. The Act defines the offence broadly to include a wide range of activities related to benefiting from or disguising the origins of illicit funds.

Correct Answer: C. Three years. Section 4 stipulates that a person found guilty of money-laundering shall be punished with rigorous imprisonment for a term that shall not be less than three years, which can extend up to seven years, along with a fine.

Correct Answer: B. If the proceeds of crime relate to an offence specified under paragraph 2 of Part A of the Schedule. The proviso indicates a more severe punishment if the money laundering is linked to certain grave offences listed in the Schedule to the Act.

Correct Answer: B. To maintain a record of all transactions in a manner that allows reconstruction of individual transactions. This requirement ensures that there is a clear trail of financial activities which can be examined if necessary.

Correct Answer: B. For a period of five years from the date of the transaction. The Act mandates a specific retention period for transaction records to aid in potential future investigations or inquiries.

Correct Answer: B. For five years after the business relationship with the client has ended or the account has been closed, whichever is later. This provision ensures that client identity records are available for a significant period even after the relationship ceases.

Correct Answer: C. The Central Government, by notification. The Act empowers the Central Government to grant exemptions from the stipulated obligations to specific reporting entities under certain conditions.

Correct Answer: B. Verify the identity of the clients undertaking such specified transaction by authentication under the Aadhaar Act, 2016, or other prescribed process. This enhanced due diligence measure aims to confirm the identity of individuals involved in specified transactions.

Correct Answer: C. Not allow the specified transaction to be carried out. If the client does not comply with the enhanced due diligence requirements, the reporting entity is prohibited from proceeding with that specified transaction.

Correct Answer: B. For five years from the date of the transaction. Similar to general transaction records, information gathered through enhanced due diligence must also be preserved for a five-year period.

Correct Answer: B. Any transaction in foreign exchange, exceeding a prescribed amount. The explanation for Section 12AA lists specific types of transactions that require enhanced due diligence, including certain foreign exchange transactions over a set threshold.

Correct Answer: B. No civil or criminal proceedings can lie against them for furnishing such information. This provision protects reporting entities and their personnel from legal repercussions when they comply with their obligation to report suspicious or prescribed transactions.

Correct Answer: C. More than ten lakh rupees or its equivalent in foreign currency. Reporting entities are required to maintain records of all individual cash transactions that exceed this specified value.

Correct Answer: B. To maintain a record of these integrally connected transactions. The rules require tracking series of smaller transactions that are linked and collectively surpass the ten lakh rupees threshold within a month.

Correct Answer: C. More than ten lakh rupees, or its equivalent in foreign currency. Transactions involving receipts by NPOs exceeding this value must be recorded by reporting entities.

Correct Answer: C. All cash transactions where forged or counterfeit currency notes or bank notes have been used as genuine. This rule ensures that any attempt to use counterfeit currency, regardless of the amount or client’s knowledge at the point of transaction by the reporting entity, is documented.

Correct Answer: C. All suspicious transactions including deposits, withdrawals, transfers, loans, investments, and collection services, among others. The rule broadly covers various types of financial dealings that are deemed suspicious, irrespective of whether they involve physical cash.

Correct Answer: C. More than five lakh rupees or its equivalent in foreign currency. Reporting entities must keep records of all cross-border wire transfers exceeding this amount if India is either the source or the recipient of the funds.

Correct Answer: C. The nature, amount (and currency), date, and parties to the transaction. Rule 4 mandates that records must include these key details to enable a full understanding and reconstruction of each transaction if required.

Correct Answer: C. Fifty lakh rupees or more. If a reporting entity registers a purchase or sale of immovable property valued at fifty lakh rupees or higher, it is required to maintain records of such a transaction.

Correct Answer: C. The occupation of the parties to the transaction. While client identity is important, Rule 4 specifically lists the nature, amount, currency, date, and parties as necessary information for transaction reconstruction, not explicitly the occupation of the parties within this particular rule’s list.

Correct Answer: C. In hard and soft copies in accordance with procedures specified by RBI or SEBI. The rule requires maintenance in both physical and electronic forms, adhering to guidelines set by regulatory bodies like the Reserve Bank of India or the Securities and Exchange Board of India.

Correct Answer: C. By the 15th day of the succeeding month. Rule 8 specifies this deadline for monthly reporting of certain categories of transactions to the Director.

Correct Answer: B. Not later than seven working days. For suspicious transactions, the rules mandate prompt reporting in writing, by fax, or by electronic mail, within seven working days of forming the suspicion.

Correct Answer: B. Every quarter by the 15th day of the month succeeding the quarter. Transactions involving high-value immovable property have a quarterly reporting cycle to the Director.

Correct Answer: C. A separate violation for each day of delay. The rules treat each day of delay in reporting or rectifying misreported information as an individual breach, potentially leading to multiple penalties.

Correct Answer: B. At the time of opening an account or executing any transaction with it. The rules require verification at the initiation of the relationship or transaction, though there is provision for verification within a reasonable time if not immediately possible.

Correct Answer: C. The banking company shall verify the identity of the client within a reasonable time after the account has been opened. The rules allow for a practical approach where verification can follow shortly after account opening or transaction execution if immediate verification is not feasible.

Correct Answer: C. One certified copy of an officially valid document containing details of permanent address, and current address. The rules specify the need for an officially recognized document for robust identity and address verification of individual clients.

Correct Answer: C. Personal income tax returns of all directors. While the company’s financial status is relevant, the rules list incorporation documents, constitutional documents like MoA and AoA, and authorization documents for account operators, not typically the personal tax returns of all directors for KYC purposes.

Correct Answer: B. Registration certificate, partnership deed, and an officially valid document for the person acting in the transaction. These documents help establish the legal existence of the firm, its constitution, and the identity of the authorized transactor.

Correct Answer: C. Registration certificate, Trust deed, and an officially valid document for the person acting in the transaction. These documents are essential to verify the legal status of the trust, its governing rules, and the authority of the person conducting transactions on its behalf.

Correct Answer: B. Resolution of the managing body, power of attorney, and information to establish legal existence. Since unincorporated associations may lack formal registration documents like companies, these alternative documents are used to ascertain their legitimacy and authorized representatives.

Correct Answer: C. For five years. The rules mandate a retention period of five years for client identity records after the conclusion of the business relationship or transactions.

Correct Answer: B. Illegally raising money from the public by floating Secured Non-Convertible Debentures and laundering it. The company was accused of collecting funds from numerous individuals through debentures and then channeling these funds into various movable properties to disguise their illicit origin.

Correct Answer: B. By opening a current account using forged identity documents and without disclosing the beneficial owner. The method involved using fraudulent documents to establish a business account, which was then used for making significant foreign remittances while hiding the true beneficiary.

Correct Answer: C. Illicit trade in opium and poppy husk. The case originated from the seizure of substantial quantities of narcotics, indicating regular illegal drug trading, the proceeds of which were then laundered.

Correct Answer: B. For laundering funds amounting to over Rs. 3.72 crore, acquired through misappropriation of public money. He was found guilty of misusing his official position to illegally acquire public funds and then channeling them through various assets and companies to make them appear legitimate.

Correct Answer: B. Establishing construction companies and a dairy firm in the names of his wife and brother to channel funds. The laundered money was routed through businesses set up under the names of his relatives to project the illicit income as legitimate earnings.

Correct Answer: B. To prevent money laundering. The principal objective of the legislation is to combat the offence of money laundering and related illicit financial activities.

Correct Answer: B. An account held by a domestic bank in the currency of the country where the funds are held, with a foreign bank. A Nostro account is “our account” with your bank, meaning a bank’s account held with a bank in a foreign country, denominated in the foreign currency.

Correct Answer: A. An account that a foreign bank holds with a domestic bank, in the domestic bank’s currency. A Vostro account is “your account” with our bank, representing an account maintained by a foreign bank with a bank in the reporting country, denominated in the local currency.

Correct Answer: B. False. The Act and its rules specifically include obligations for banking companies and financial institutions, making it very much applicable to banking transactions to prevent their misuse for money laundering.

Correct Answer: B. False. While Section 3 describes what constitutes the “offence of money-laundering,” the Act itself does not provide a separate, explicit definition of the term “money laundering” in a definitional section. Instead, it defines the offence through the activities involved.

Correct Answer: B. False. Records referred to in clause (a) of sub-section (1) of Section 12 (which are general transaction records) are to be maintained for a period of five years from the date of the transaction, and client identity records for five years after the business relationship ends or account closure.