🔹 Introduction
Money Laundering means converting illegal / black money into legal-looking / white money without revealing the true source.
AML
AML refers to laws, policies, systems & procedures designed to prevent criminals from using the financial system to hide illegal money.
Main Purpose of AML
✔ Prevent illegal money from entering the financial system
✔ Detect suspicious transactions
✔ Ensure transparency & accountability
✔ Support national security and stop terror financing
🧱 CHAPTER 1: STAGES OF MONEY LAUNDERING
| Stage | Meaning | Example |
|---|---|---|
| Placement | Putting illegal money into the financial system | Depositing large cash into bank |
| Layering | Hiding the source through complex transactions | Multiple transfers in different accounts |
| Integration | Money appears legitimate | Buying property, luxury items, businesses |
📌 Mnemonic: PLI = Placement → Layering → Integration
🧱 CHAPTER 2: AML Framework in India
Key Legislations
| Law / Act | Description |
|---|---|
| PMLA, 2002 | Main law for AML in India |
| PMLA Amendment 2005, 2009, 2012, 2019 | Strengthened powers & penalties |
| FEMA 1999 | Regulates foreign exchange |
| Benami Transactions Act 1988 / amended 2016 | For property in fake names |
Authorities / Institutions
| Authority | Role |
|---|---|
| FIU-IND (Financial Intelligence Unit – India) | Collects, analyzes, shares suspicious transaction reports |
| Enforcement Directorate (ED) | Investigation & attachment of property |
| RBI / SEBI / IRDAI | AML compliance in banking & financial markets |
| NABARD | AML monitoring in rural banks |
🧱 CHAPTER 3: AML in Banking System
Key AML Components
- KYC (Know Your Customer)
- Customer Due Diligence (CDD)
- Enhanced Due Diligence (EDD)
- Ongoing Monitoring
- AML Risk Scoring System
- Reporting to FIU-IND
Types of Customer Due Diligence
| Type | Purpose | Example |
|---|---|---|
| CDD | Basic verification | PAN, Aadhaar, Address proof |
| EDD | High-risk customers like NRIs, PEPs | Politically Exposed Persons |
| Simplified Due Diligence (SDD) | Low-risk (small deposits) | Basic savings A/c |
Risk Categories for Customers
| Risk Type | Examples |
|---|---|
| Low Risk | Salaried, students, pensioners |
| Medium Risk | Business income, small traders |
| High Risk | NRI, PEPs, Casinos, NGOs, Crypto users |
📌 PEP = Politically Exposed Person
(Ex: ministers, MPs, judges)
🧱 CHAPTER 4: AML Compliance Reports (Banks must submit to FIU-IND)
| Report | Full Form | Submission Condition |
|---|---|---|
| STR | Suspicious Transaction Report | Suspicious pattern / activity |
| CTR | Cash Transaction Report | Cash ≥ ₹10 lakh in a month |
| NTR | Non-Profit Organisation Transaction Report | NGO accounts |
| CCR | Counterfeit Currency Report | Fake currency detected |
| CBWTR | Cross-border Wire Transfer Report | International transfers ≥ ₹5 lakh |
📌 Mnemonic: SC-CCN = STR, CTR, CCR, CBWTR, NTR
🧱 CHAPTER 5: Examples of Money Laundering in Banking
- Structuring deposits below ₹10 lakh to avoid CTR reporting
- Opening multiple accounts using fake documents
- Use of shell / paper companies
- Hawala transactions
- Trade-based laundering (false invoices)
🧱 CHAPTER 6: Technology in AML
Digital Tools used
✔ AI & Machine Learning for fraud pattern detection
✔ Real-time transaction monitoring
✔ Blockchain technology for transparent tracking
✔ e-KYC / Aadhaar-based biometric verification
✔ AML Analytics Dashboard
CBDC / Digital Rupee Example
- Digital Rupee (e₹) transactions are traceable & transparent, helps in AML detection
- Used in interbank settlements & cross-border payments
🧱 CHAPTER 7: Global AML Standards
| Body | Role |
|---|---|
| FATF (Financial Action Task Force) | Global AML watchdog |
| APG, Egmont Group | International cooperation networks |
📌 FATF Grey List & Black List Questions Asked Frequently
🧱 CHAPTER 8: Penalties
- Property attachment & confiscation
- Imprisonment up to 7 years
- Heavy monetary fines
🔥 Most Important
- Main AML Law = PMLA 2002
- FIU-IND collects STR / CTR / NTR / CBWTR / CCR
- STR must be filed within 7 days of detection
- CTR threshold = ₹10 lakh (monthly aggregation)
- Money Laundering Stages = Placement → Layering → Integration
- PEP = Politically Exposed Person
- FATF = Global AML watchdog
- Digital Rupee supports AML due to traceability
- EDD for High-Risk Customers
- ED is enforcement agency under PMLA
📍 Visual Summary
| Topic | Key Points |
|---|---|
| AML | Process to prevent illegal money entering banking |
| Main Law | PMLA 2002 |
| Regulator | FIU-IND, RBI, SEBI |
| AML Reports | STR, CTR, CCR, NTR, CBWTR |
| Customer Types | CDD, SDD, EDD |
| Risk Categories | Low / Medium / High |
| FATF | Global regulator |
| CBDC | Supports AML via transparency |
⏳ 2-Minute Quick Revision Sheet
✔ AML prevents converting black money → white money
✔ Stages: Placement → Layering → Integration
✔ Main law: PMLA 2002, amended 2005, 2009, 2012, 2019
✔ Reporting agency: FIU-IND
✔ Reports: STR, CTR ≥₹10 lakh, CBWTR ≥₹5 lakh, CCR, NTR
✔ High-risk: PEP, NRI, Casinos, Crypto
✔ KYC + CDD + EDD + Ongoing monitoring
✔ Digital Rupee enhances AML due to trackable transactions
✔ FATF sets global AML standards
✔ ED investigates & attaches properties
✔ Penalties: Up to 7 years prison
50 MOST IMPORTANT MCQs – ANTI MONEY LAUNDERING (AML)
🔹 CHAPTER 1: BASICS OF MONEY LAUNDERING & AML (12 MCQs)
Q1. Money laundering mainly refers to:
a) Paying income tax on salary
b) Converting legal money into black money
c) Converting illegal money into apparently legal money
d) Depositing cash in savings account
Answer: c) Converting illegal money into apparently legal money
Explanation: Money laundering is the process of hiding the illegal origin of funds. 👉 (HIGHLY IMPORTANT)
Q2. Anti Money Laundering (AML) refers to:
a) Laws to prevent cheque bounce
b) Systems to improve customer service
c) Measures to prevent and detect use of financial system for crime money
d) Rules for NPA management
Answer: c) Measures to prevent and detect use of financial system for crime money
Explanation: AML aims to stop criminals from using banks to clean illegal funds. 👉 (HIGHLY IMPORTANT)
Q3. Which of the following is NOT a stage of money laundering?
a) Placement
b) Authentication
c) Layering
d) Integration
Answer: b) Authentication
Explanation: Three classic stages are Placement, Layering, Integration.
Q4. In which stage of money laundering is illegal cash first introduced into the financial system?
a) Placement
b) Layering
c) Integration
d) Conversion
Answer: a) Placement
Explanation: Placement is the first entry of illicit cash into the system. 👉 (HIGHLY IMPORTANT)
Q5. “Layering” in money laundering means:
a) Paying income tax on time
b) Creating complex transactions to hide the money trail
c) Returning funds to the customer
d) Opening a term deposit
Answer: b) Creating complex transactions to hide the money trail
Explanation: Layering breaks the audit trail through multiple transfers.
Q6. The final stage where laundered money re-enters the legitimate economy is called:
a) Placement
b) Hiding
c) Integration
d) Fractioning
Answer: c) Integration
Explanation: Integration makes illegal funds appear as normal business income.
Q7. Which of the following is a common method of money laundering?
a) ATM withdrawal
b) Structuring (smurfing) deposits below reporting limits
c) RTGS within own accounts only
d) NEFT to government accounts only
Answer: b) Structuring (smurfing) deposits below reporting limits
Explanation: Multiple small deposits are used to avoid detection. 👉 (HIGHLY IMPORTANT)
Q8. “Hawala” is best described as:
a) A type of cheque
b) A type of loan
c) An informal and illegal value transfer system outside banking channels
d) A government scheme
Answer: c) An informal and illegal value transfer system outside banking channels
Explanation: Hawala is used heavily for money laundering and terror financing.
Q9. Main objective of AML measures in banks is to:
a) Increase deposits
b) Prevent and detect criminal misuse of banking channels
c) Reduce staff workload
d) Limit digital banking
Answer: b) Prevent and detect criminal misuse of banking channels
Explanation: AML protects the integrity of the financial system.
Q10. Which one of the following is closely related to AML?
a) Priority Sector Lending
b) Basel III Norms
c) KYC norms
d) RTGS timings
Answer: c) KYC norms
Explanation: KYC is the backbone of AML and CFT framework. 👉 (HIGHLY IMPORTANT)
Q11. Which is NOT an objective of AML?
a) Prevent terror financing
b) Maintain integrity of financial system
c) Comply with global standards
d) Maximize profit of the bank
Answer: d) Maximize profit of the bank
Explanation: AML is about risk management, not profit maximization.
Q12. CFT in the context of AML stands for:
a) Central Financial Transaction
b) Combating the Financing of Terrorism
c) Cash Flow Tracking
d) Corporate Financial Transparency
Answer: b) Combating the Financing of Terrorism
Explanation: AML and CFT are always mentioned together in exams. 👉 (HIGHLY IMPORTANT)
🔹 CHAPTER 2: LEGAL & REGULATORY FRAMEWORK (INDIA & GLOBAL) – 13 MCQs
Q13. The main law dealing with money laundering in India is:
a) FEMA, 1999
b) RBI Act, 1934
c) Prevention of Money Laundering Act (PMLA), 2002
d) Banking Regulation Act, 1949
Answer: c) Prevention of Money Laundering Act (PMLA), 2002
Explanation: PMLA is the core AML legislation in India. 👉 (HIGHLY IMPORTANT)
Q14. PMLA came into force in India from:
a) 1 January 2003
b) 1 July 2005
c) 1 April 2004
d) 1 April 2006
Answer: b) 1 July 2005
Explanation: Act passed in 2002, implemented from 1 July 2005.
Q15. The nodal agency in India for receiving and processing AML reports (like STR/CTR) is:
a) RBI
b) SEBI
c) Enforcement Directorate
d) FIU-IND (Financial Intelligence Unit – India)
Answer: d) FIU-IND (Financial Intelligence Unit – India)
Explanation: FIU-IND collects and analyses financial intelligence. 👉 (HIGHLY IMPORTANT)
Q16. Enforcement Directorate (ED) mainly functions under which Act for AML cases?
a) FEMA only
b) PMLA, 2002
c) RBI Act
d) SEBI Act
Answer: b) PMLA, 2002
Explanation: ED investigates and attaches properties under PMLA.
Q17. As per PMLA, “proceeds of crime” refers to:
a) Income from stock market
b) Any property derived from criminal activity relating to a scheduled offence
c) Legal business profit
d) Tax refunds
Answer: b) Any property derived from criminal activity relating to a scheduled offence
Explanation: Key definition for attachment/confiscation. 👉 (HIGHLY IMPORTANT)
Q18. FATF stands for:
a) Financial Asset Task Force
b) Fiscal Action Task Force
c) Financial Action Task Force
d) Financial Anti-Terror Force
Answer: c) Financial Action Task Force
Explanation: FATF sets global AML/CFT standards.
Q19. FATF was established in:
a) 1975
b) 1985
c) 1989
d) 1995
Answer: c) 1989
Explanation: FATF created by G7 in 1989.
Q20. FATF issues internationally accepted AML standards known as:
a) Basel List
b) 40 Recommendations
c) 10 Golden Rules
d) PMLA Guidelines
Answer: b) 40 Recommendations
Explanation: Famous “FATF 40 Recommendations” – frequent exam point.
Q21. Being placed on FATF “Grey List” mainly indicates that a country:
a) Has no banking system
b) Has high income level
c) Has strategic AML/CFT deficiencies but is cooperating
d) Is a tax-free nation
Answer: c) Has strategic AML/CFT deficiencies but is cooperating
Explanation: Grey list = increased monitoring.
Q22. Which of the following is the global network of FIUs?
a) FATF Group
b) Basel Committee
c) Egmont Group
d) IMF Group
Answer: c) Egmont Group
Explanation: Egmont Group facilitates cooperation among FIUs.
Q23. In India, regulatory AML guidelines for banks mainly come from:
a) Ministry of Finance only
b) RBI Master Direction on KYC / AML
c) Supreme Court
d) NITI Aayog
Answer: b) RBI Master Direction on KYC / AML
Explanation: RBI issues detailed operational instructions to banks. 👉 (HIGHLY IMPORTANT)
Q24. Under PMLA, “reporting entities” include:
a) Banks only
b) NBFCs only
c) Banks, NBFCs, intermediaries, and specified financial institutions
d) Only foreign banks
Answer: c) Banks, NBFCs, intermediaries, and specified financial institutions
Explanation: Many financial entities are covered as reporting entities.
Q25. Who is responsible in a bank for overall AML compliance?
a) Head Cashier
b) Branch Manager
c) Principal Officer / AML Compliance Officer
d) Marketing Officer
Answer: c) Principal Officer / AML Compliance Officer
Explanation: Principal Officer is designated to interact with FIU-IND. 👉 (HIGHLY IMPORTANT)
🔹 CHAPTER 3: AML IN BANKING OPERATIONS (KYC, CDD, REPORTING) – 15 MCQs
Q26. KYC mainly means:
a) Know Your Company
b) Keep Your Cash
c) Know Your Customer
d) Know Your Credit
Answer: c) Know Your Customer
Explanation: KYC is foundation of customer identification. 👉 (HIGHLY IMPORTANT)
Q27. Which combination is correct for KYC identification?
a) Identity only
b) Address only
c) Identity + Address + Recent photo (for individuals)
d) Signature only
Answer: c) Identity + Address + Recent photo (for individuals)
Explanation: Proper KYC needs all key details.
Q28. CDD stands for:
a) Customer Deposit Details
b) Customer Due Diligence
c) Credit Data Document
d) Customer Default Detection
Answer: b) Customer Due Diligence
Explanation: CDD = collecting and verifying customer information.
Q29. Enhanced Due Diligence (EDD) is required for:
a) Small savings bank accounts
b) Low income pensioners
c) High-risk customers like PEPs, NRI high value, complex entities
d) Normal salary accounts
Answer: c) High-risk customers like PEPs, NRI high value, complex entities
Explanation: Higher risk → deeper checks.
Q30. A Politically Exposed Person (PEP) generally means:
a) Bank employees
b) Persons holding important public positions (ministers, MPs, senior officials)
c) Any NRI
d) Joint account holder
Answer: b) Persons holding important public positions (ministers, MPs, senior officials)
Explanation: PEPs are high-risk for AML/CFT. 👉 (HIGHLY IMPORTANT)
Q31. Which of the following is NOT a valid KYC document for identity in India (for resident individuals)?
a) PAN Card
b) Passport
c) Aadhaar
d) Ration Card (in current RBI KYC list)
Answer: d) Ration Card (in current RBI KYC list)
Explanation: PAN, Aadhaar, Passport etc. are Officially Valid Documents (OVDs).
Q32. Periodic KYC updation is required more frequently for:
a) Low-risk accounts
b) Medium-risk accounts
c) High-risk accounts
d) Staff accounts
Answer: c) High-risk accounts
Explanation: Risk-based approach used for KYC review.
Q33. STR stands for:
a) Standard Transaction Report
b) Suspicious Transaction Report
c) Systematic Transaction Record
d) Short-term Report
Answer: b) Suspicious Transaction Report
Explanation: STR is filed when activity appears suspicious, regardless of amount. 👉 (HIGHLY IMPORTANT)
Q34. CTR is to be filed for:
a) All NEFT transactions
b) Cash transactions of ₹10 lakh and above in a month (single or series)
c) Only RTGS transactions
d) Only forex transactions
Answer: b) Cash transactions of ₹10 lakh and above in a month (single or series)
Explanation: CTR relates to large cash activity.
Q35. CBWTR refers to:
a) Corporate Bank Wide Transaction Report
b) Cross Border Wire Transfer Report
c) Cash Based Withdrawal Transaction Report
d) Card Based Withdrawal Transaction Report
Answer: b) Cross Border Wire Transfer Report
Explanation: Mandatory for cross-border remittances above threshold.
Q36. Banks should file STR to FIU-IND:
a) Only at year-end
b) Within 7 days of establishing suspicion
c) Within 90 days
d) Only if customer is non-resident
Answer: b) Within 7 days of establishing suspicion
Explanation: PML rules specify timely reporting of STR. 👉 (HIGHLY IMPORTANT)
Q37. “Tipping off” in AML context means:
a) Reporting STR to FIU-IND
b) Informing the customer about STR or AML suspicion
c) Updating KYC
d) Submitting CTR
Answer: b) Informing the customer about STR or AML suspicion
Explanation: Tipping off is prohibited and a serious violation.
Q38. When a customer refuses to provide KYC documents, the bank should:
a) Open account with maximum limits
b) Ignore KYC
c) Not open the account / close existing relationship (after due notice)
d) Give only ATM card
Answer: c) Not open the account / close existing relationship (after due notice)
Explanation: KYC non-compliance → no banking relationship.
Q39. For small accounts (as per RBI KYC norms), limitation is:
a) No limits
b) Restricted balance & transaction limits with simplified KYC
c) Only for corporates
d) Only NRI accounts
Answer: b) Restricted balance & transaction limits with simplified KYC
Explanation: Small accounts allow financial inclusion but with caps and monitoring.
Q40. Ongoing monitoring of accounts is required to:
a) Calculate minimum balance charges
b) Ensure transactions match customer profile and risk rating
c) Promote bank products
d) Avoid cheque return
Answer: b) Ensure transactions match customer profile and risk rating
Explanation: Monitoring detects unusual patterns.
🔹 CHAPTER 4: ADVANCED & RECENT DEVELOPMENTS (DIGITAL, CBDC, GLOBAL TRENDS) – 10 MCQs
Q41. Which technology is widely used in modern AML systems for pattern detection?
a) Fax-based alerts
b) Artificial Intelligence / Machine Learning
c) Typewriters
d) Manual registers
Answer: b) Artificial Intelligence / Machine Learning
Explanation: AI/ML help detect complex suspicious patterns.
Q42. e-KYC in India is mainly enabled through:
a) Passport only
b) Driving Licence only
c) Aadhaar-based electronic authentication
d) Voter ID only
Answer: c) Aadhaar-based electronic authentication
Explanation: e-KYC uses Aadhaar for instant verification.
Q43. How does RBI’s Central Bank Digital Currency (CBDC) / Digital Rupee help AML efforts?
a) Fully anonymous transactions
b) No transaction record
c) Better traceability and audit trail of digital transactions
d) Only offline storage
Answer: c) Better traceability and audit trail of digital transactions
Explanation: CBDC reduces physical cash-based laundering. 👉 (HIGHLY IMPORTANT)
Q44. Which of the following is a key AML risk in virtual assets / cryptocurrencies?
a) Limited internet usage
b) Pseudo-anonymous transactions & cross-border transfers
c) Fixed interest rate
d) Branch-level KYC
Answer: b) Pseudo-anonymous transactions & cross-border transfers
Explanation: Crypto can be misused for global laundering.
Q45. Trade-Based Money Laundering (TBML) mainly involves:
a) Only cash deposits
b) Over/under–invoicing, fake imports/exports, multiple invoicing
c) ATM withdrawals
d) RTGS in same bank
Answer: b) Over/under–invoicing, fake imports/exports, multiple invoicing
Explanation: TBML uses trade documents to launder funds.
Q46. In a risk-based AML approach, banks should:
a) Treat all customers as equal risk
b) Allocate more resources to high-risk customers and products
c) Ignore high-risk customers
d) Avoid KYC for low-risk customers
Answer: b) Allocate more resources to high-risk customers and products
Explanation: Risk-based approach is core FATF and RBI expectation.
Q47. Sanctions screening in AML refers to:
a) Checking customer CIBIL score
b) Checking names against UN / OFAC / domestic sanctions lists
c) Checking ATM PIN
d) Checking nomination details
Answer: b) Checking names against UN / OFAC / domestic sanctions lists
Explanation: Banks must avoid dealing with sanctioned entities. 👉 (HIGHLY IMPORTANT)
Q48. Which statement about STR is correct?
a) Amount must be above ₹10 lakh
b) Customer must be informed
c) Can be filed for any amount, based on suspicion
d) Filed only for NRI accounts
Answer: c) Can be filed for any amount, based on suspicion
Explanation: Suspicion is key, not the transaction size.
Q49. Which of the following BEST indicates an AML red flag in an account?
a) Regular salary credits
b) EMI payments
c) Sudden high-value cash deposits inconsistent with customer profile
d) Utility bill payments
Answer: c) Sudden high-value cash deposits inconsistent with customer profile
Explanation: Deviation from expected behaviour is a red flag.
Q50. Beneficial Owner (BO) in AML context refers to:
a) Branch Manager of the bank
b) Nominee of the account
c) Natural person who ultimately owns or controls the customer / entity
d) Auditor of the company
Answer: c) Natural person who ultimately owns or controls the customer / entity
Explanation: Identifying BO is crucial for companies / firms / trusts. 👉 (HIGHLY IMPORTANT)