Module: | MODULE A: INTERNATIONAL BANKING
Q192: Consider the following statements regarding the compliance obligations of an Authorized Person under the Act:
1. An Authorized Person is legally bound to comply with all directions and guidelines issued by the Reserve Bank of India regarding foreign exchange dealings.
2. Before undertaking any transaction on behalf of a customer, the Authorized Person must obtain a written declaration stating that the transaction will not involve any contravention of the Act.
3. If an Authorized Person suspects that a customer declaration is false or evasive, they must execute the transaction first and then report the matter to the authorities.
Which of the statements given above is or are correct?
2. Before undertaking any transaction on behalf of a customer, the Authorized Person must obtain a written declaration stating that the transaction will not involve any contravention of the Act.
3. If an Authorized Person suspects that a customer declaration is false or evasive, they must execute the transaction first and then report the matter to the authorities.
Which of the statements given above is or are correct?
✅ Correct Answer: A
🎯 Quick Answer:
Option A is correct because only statements 1 and 2 are accurate.Structural Breakdown: Section 10 of the Act mandates that Authorized Persons must strictly follow central bank directives.
Furthermore, Section 10 subsection 5 requires the bank to obtain a declaration from the customer confirming the legality of the transaction.
Statement 3 is entirely incorrect.
The Act explicitly states that if the Authorized Person is not satisfied with the customer's declaration or suspects evasion, they must refuse in writing to undertake the transaction and report the matter to the Reserve Bank of India; they cannot execute it.
Historical Context: This compliance architecture shifts the massive burden of individual transaction monitoring from the central bank directly onto the commercial banking system, utilizing the banks' direct relationships with the transacting public.
Causal Reasoning: The causal logic behind the mandatory refusal rule is risk containment.
Executing a suspicious transaction allows capital to cross borders, after which recovery is nearly impossible.
By mandating pre-emptive refusal, the Act stops illegal capital flight before the money leaves the sovereign jurisdiction.