📌 What is Anti–Money Laundering?
Anti–Money Laundering (AML) refers to laws, regulations, and procedures used to prevent criminals from converting illegal money (black money) into legitimate money (white money).
Simple Meaning
➡ Stopping illegal money from entering the banking and financial system.
Money Laundering Process (3 Stages)
| Stage | Meaning | Example |
|---|---|---|
| Placement | Injecting illegal money into the financial system | Depositing cash in small amounts into banks |
| Layering | Hiding the source using multiple transactions | International transfers through shell companies |
| Integration | Money becomes clean and usable | Buying property, business investment |
Mnemonic: P-L-I = Placement → Layering → Integration
CHAPTER-WISE NOTES
🧾 CHAPTER 1: Key AML Terms
| Term | Meaning |
|---|---|
| KYC | Know Your Customer – verifies identity |
| CDD | Customer Due Diligence |
| EDD | Enhanced Due Diligence (for high-risk customers) |
| KYB | Know Your Business |
| PEP | Politically Exposed Persons (High-risk profile) |
| CTR | Cash Transaction Report (Above ₹10 lakh in a day) |
| STR / SAR | Suspicious Transaction Report |
| FIU-IND | Financial Intelligence Unit–India (collects & analyses STR/CTR) |
| AML Act | Prevention of Money Laundering Act (PMLA), 2002 |
🏛 CHAPTER 2: Legal Framework in India
| Law / Body | Function |
|---|---|
| PMLA 2002 | Main law against money laundering |
| Amended in 2005, 2009, 2012, 2017, 2019, 2022, 2023 | Expands definition of reporting entities |
| FIU–IND (2004) | Receives STR / CTR from banks & analyses |
| RBI, SEBI, IRDAI, PFRDA, Customs Dept. | AML regulators |
| ECGC, NBFCs, Payment Banks, Co-operative Banks | Must comply with AML |
💡 CHAPTER 3: RBI AML/KYC Guidelines (Master Directions)
✔ Introduced 2016, updated regularly
✔ Mandatory for Banks, NBFCs, Payment Banks, Wallets (e.g., Paytm), Brokers
Four Pillars of AML Compliance
- Internal Policies & Control
- Customer Acceptance Policy (CAP)
- Risk Management
- Monitoring & Internal Audit
🎯 CHAPTER 4: Risk Categories
| Risk Type | Example |
|---|---|
| Low risk | Salaried employees, Govt employees |
| Medium risk | SMEs |
| High risk | PEPs, Foreign NGOs, Shell companies |
🌎 CHAPTER 5: International AML Bodies
| Body | Details |
|---|---|
| FATF | Global AML watchdog (40 Recommendations) |
| APG | Asia-Pacific Group on AML |
| Egmont Group | Network of FIUs |
| Basel AML Index | Ranks AML risk of countries |
💰 CHAPTER 6: Methods of Money Laundering
- Structuring / Smurfing
- Shell Companies
- Real Estate Deals
- Trade-Based Laundering (Over/Under invoicing)
- Cryptocurrency laundering
- Hawala
- Round Tripping
- Use of NGOs / Donations
🔐 CHAPTER 7: AML in Digital Era
| Technology | Use in AML |
|---|---|
| AI / ML | Detect suspicious patterns |
| Blockchain | Transparent trail |
| e-KYC / Aadhaar | Instant verification |
| CBDC (Digital Rupee) | Traceable digital money |
🔥 MOST IMPORTANT POINTS
🔴 PMLA 2002 is India’s main AML law
🔴 FIU-IND receives STR / CTR
🔴 STR must be filed within 7 days of detection
🔴 CTR for cash transactions > ₹10 lakh in a day (monthly filing)
🔴 KYC mandatory under RBI Master Directions 2016
🔴 FATF – 40 Recommendations
🔴 3 Stages of money laundering: Placement – Layering – Integration
🔴 PEP = High-risk category
📦 Table Summary
| Topic | Key Points |
|---|---|
| AML Law | PMLA 2002 |
| Regulator India | FIU-IND |
| Regulator Global | FATF |
| Reporting | STR, CTR |
| High-Risk Example | PEP, Trusts, Shell Company |
| Filing Time | STR – 7 days ; CTR – Monthly |
📝 100 MOST IMPORTANT MCQs
📚 CHAPTER 1 – BASICS & DEFINITIONS (Q1–Q25)
Q1. Anti-Money Laundering (AML) mainly refers to which of the following?
a) Rules to increase bank profits
b) Rules to prevent conversion of illegal money into legal money
c) Rules for credit appraisal of borrowers
d) Rules for taxation of income
Answer: b) Rules to prevent conversion of illegal money into legal money
Explanation: AML aims to stop criminals from converting “dirty” money into “clean” money. 👉 (HIGHLY IMPORTANT)
Q2. Which of the following is NOT a stage of money laundering?
a) Placement
b) Layering
c) Integration
d) Repayment
Answer: d) Repayment
Explanation: Three classic stages are Placement, Layering and Integration.
Q3. In which stage of money laundering is cash first introduced into the financial system?
a) Placement
b) Layering
c) Integration
d) Conversion
Answer: a) Placement
Explanation: Placement is the initial stage where illicit cash enters the system. 👉 (HIGHLY IMPORTANT)
Q4. Hiding the original source of funds by complex transfers and multiple accounts is called:
a) Screening
b) Layering
c) Placement
d) Aggregation
Answer: b) Layering
Explanation: Layering creates complex layers of transactions to hide the origin.
Q5. Converting laundered funds into apparently legitimate assets is part of which stage?
a) Placement
b) Layering
c) Integration
d) Conversion
Answer: c) Integration
Explanation: Integration places “cleaned” funds back into the real economy.
Q6. The main objective of AML measures in banks is to:
a) Increase customer base
b) Ensure timely loan recovery
c) Prevent misuse of banking channels for illegal activities
d) Reduce operating expenses
Answer: c) Prevent misuse of banking channels for illegal activities
Explanation: AML focuses on preventing banks from being used for criminal purposes. 👉 (HIGHLY IMPORTANT)
Q7. The process of verifying identity and address of a customer is known as:
a) CIF creation
b) KYC
c) CBS mapping
d) RTGS
Answer: b) KYC
Explanation: KYC stands for Know Your Customer.
Q8. Money laundering is generally associated with which of the following crimes?
a) Tax evasion only
b) Bribery, drug trafficking, terrorism, etc.
c) Normal salary income
d) Agricultural income
Answer: b) Bribery, drug trafficking, terrorism, etc.
Explanation: Proceeds of serious crimes are commonly laundered.
Q9. Which of the following is a typical example of placement?
a) Buying shares through multiple brokers
b) Splitting large cash into small deposits in different branches
c) Transferring money through several shell companies
d) Investing in real estate projects
Answer: b) Splitting large cash into small deposits in different branches
Explanation: Small deposits of illicit cash help initially place funds into the system.
Q10. “Smurfing” in AML context means:
a) Use of digital signatures
b) Splitting large transactions into many small ones
c) Issuing credit cards to minors
d) Blocking customer accounts
Answer: b) Splitting large transactions into many small ones
Explanation: Smurfing/structuring avoids reporting thresholds.
Q11. Which of the following is a key risk of weak AML controls for banks?
a) Higher ATM uptime
b) Reputation risk and penalties
c) Lower staff turnover
d) Increased CASA deposits only
Answer: b) Reputation risk and penalties
Explanation: AML failures lead to fines, loss of reputation and legal action.
Q12. Trade-based money laundering typically involves:
a) Over or under-invoicing of goods
b) Only cash deposits
c) Gold loans
d) Mutual fund SIPs
Answer: a) Over or under-invoicing of goods
Explanation: TBML uses manipulated trade prices and quantities.
Q13. “Beneficial Owner” refers to a person who:
a) Manages bank branch
b) Ultimately owns or controls a customer or the person on whose behalf a transaction is conducted
c) Is nominee in a savings account
d) Is legal heir to a property
Answer: b) Ultimately owns or controls a customer or the person on whose behalf a transaction is conducted
Explanation: BO is the real person behind a legal entity or arrangement. 👉 (HIGHLY IMPORTANT)
Q14. Which type of risk is directly linked to non-compliance with AML laws?
a) Liquidity risk
b) Compliance risk
c) Market risk
d) Operational risk only
Answer: b) Compliance risk
Explanation: Breach of AML regulations is a compliance risk.
Q15. Politically Exposed Persons (PEPs) are considered:
a) Low-risk customers
b) Normal risk
c) High-risk customers
d) Zero-risk customers
Answer: c) High-risk customers
Explanation: PEPs hold prominent public positions and may be exposed to corruption risk. 👉 (HIGHLY IMPORTANT)
Q16. Hawala is best described as:
a) Official trade credit scheme
b) Informal value transfer system outside regulated channels
c) Government bond trading
d) Microfinance lending
Answer: b) Informal value transfer system outside regulated channels
Explanation: Hawala uses informal networks, often unrecorded and cross-border.
Q17. Which of the following is an example of “integration” stage?
a) Cash smuggling
b) Depositing small cash amounts in different accounts
c) Buying luxury cars and real estate from laundered money
d) Using fake invoices to move funds
Answer: c) Buying luxury cars and real estate from laundered money
Explanation: This converts laundered funds into legitimate-looking assets.
Q18. AML controls are part of which broader area of bank management?
a) Customer service
b) Risk management and compliance
c) Treasury operations
d) Marketing
Answer: b) Risk management and compliance
Explanation: AML forms part of overall risk and compliance framework.
Q19. Which of these is NOT a primary objective of an AML program?
a) Detect suspicious transactions
b) Report suspicious activity to authorities
c) Facilitate tax planning for customers
d) Prevent misuse of products for crime
Answer: c) Facilitate tax planning for customers
Explanation: AML is for crime prevention, not financial planning.
Q20. Which of the following is the best indicator of potential money laundering?
a) Regular salary credits
b) Sudden large cash deposits inconsistent with profile
c) EMI payments
d) Utility bill payments
Answer: b) Sudden large cash deposits inconsistent with profile
Explanation: Activity inconsistent with known profile is a key red flag. 👉 (HIGHLY IMPORTANT)
Q21. The term “proceeds of crime” in PMLA refers to:
a) Any legal income
b) Property derived or obtained from criminal activity
c) Only cash from theft
d) Only foreign currency
Answer: b) Property derived or obtained from criminal activity
Explanation: Includes any value derived from scheduled offences.
Q22. Money laundering can occur through which of the following?
a) Cash transactions
b) Wire transfers
c) Trade finance transactions
d) All of the above
Answer: d) All of the above
Explanation: ML can use any financial channel.
Q23. “Shell company” in AML context means:
a) Government-owned enterprise
b) Company with significant operations and employees
c) Entity that exists mainly on paper with little or no operations
d) Listed company
Answer: c) Entity that exists mainly on paper with little or no operations
Explanation: Shells are often used to hide ownership and move funds.
Q24. Which customers are typically considered low-risk under AML?
a) High net-worth individuals with complex structures
b) Salaried employees with stable profiles
c) Large cash-intensive businesses
d) Politically exposed persons
Answer: b) Salaried employees with stable profiles
Explanation: Salaried persons with clear income trail usually pose lower risk.
Q25. AML and CFT taken together mainly aim to combat:
a) Market volatility
b) Money laundering and terrorist financing
c) Interest rate risk
d) Currency depreciation
Answer: b) Money laundering and terrorist financing
Explanation: AML = Anti-Money Laundering, CFT = Combating Financing of Terrorism. 👉 (HIGHLY IMPORTANT)
🏛️ CHAPTER 2 – LEGAL & REGULATORY FRAMEWORK (Q26–Q50)
Q26. The principal law dealing with money laundering in India is:
a) FEMA, 1999
b) PMLA, 2002
c) RBI Act, 1934
d) Banking Regulation Act, 1949
Answer: b) PMLA, 2002
Explanation: Prevention of Money Laundering Act, 2002 is the key AML law in India. 👉 (HIGHLY IMPORTANT)
Q27. PMLA, 2002 came into force in India from:
a) 1999
b) 2005
c) 2010
d) 2015
Answer: b) 2005
Explanation: Although enacted in 2002, PMLA became effective from 2005.
Q28. The main objective of PMLA is to:
a) Regulate stock exchanges
b) Prevent money laundering and confiscate proceeds of crime
c) Control inflation
d) Promote exports
Answer: b) Prevent money laundering and confiscate proceeds of crime
Explanation: PMLA targets laundering and allows attachment/confiscation.
Q29. The term “reporting entity” under PMLA includes:
a) Banks only
b) Banks and financial institutions only
c) Banks, financial institutions, intermediaries and specified persons
d) Only insurance companies
Answer: c) Banks, financial institutions, intermediaries and specified persons
Explanation: PMLA covers multiple categories of reporting entities.
Q30. Which authority in India receives STRs and CTRs from banks and other entities?
a) RBI
b) SEBI
c) FIU-IND
d) CBI
Answer: c) FIU-IND
Explanation: Financial Intelligence Unit–India is the central nodal agency. 👉 (HIGHLY IMPORTANT)
Q31. FIU-IND functions under which ministry?
a) Ministry of Home Affairs
b) Ministry of Corporate Affairs
c) Ministry of Finance
d) Ministry of Commerce
Answer: c) Ministry of Finance
Explanation: FIU-IND works under Department of Revenue, Ministry of Finance.
Q32. Under PMLA, the offences connected with money laundering are called:
a) Scheduled offences
b) Core offences
c) Primary offences
d) Basic offences
Answer: a) Scheduled offences
Explanation: Listed in the Schedule to PMLA and generate proceeds of crime. 👉 (HIGHLY IMPORTANT)
Q33. The agency primarily responsible for framing KYC/AML guidelines for banks in India is:
a) NABARD
b) RBI
c) SEBI
d) IRDAI
Answer: b) RBI
Explanation: RBI issues KYC Master Directions and AML standards for banks.
Q34. The global standard-setting body for AML/CFT is:
a) BIS
b) IOSCO
c) FATF
d) IMF
Answer: c) FATF
Explanation: Financial Action Task Force issues 40 Recommendations on AML/CFT.
Q35. FATF was established in which year?
a) 1970
b) 1989
c) 1999
d) 2001
Answer: b) 1989
Explanation: FATF was set up by G7 in 1989.
Q36. The number of core FATF Recommendations on AML/CFT is commonly referred to as:
a) 10 Recommendations
b) 20 Recommendations
c) 30 Recommendations
d) 40 Recommendations
Answer: d) 40 Recommendations
Explanation: FATF has 40 Recommendations (plus related guidance). 👉 (HIGHLY IMPORTANT)
Q37. The Basel AML Index is used to:
a) Rank banks by profit
b) Rank countries by money laundering risk
c) Rate stock market volatility
d) Measure inflation
Answer: b) Rank countries by money laundering risk
Explanation: It is a country ranking for ML/TF risk.
Q38. Which of the following is TRUE regarding record-keeping under PMLA?
a) Records must be kept for 2 years
b) Records must be kept for 5 years only
c) Records must be kept for at least 5 years after business relationship ends
d) Records may be destroyed immediately
Answer: c) Records must be kept for at least 5 years after business relationship ends
Explanation: PML Rules prescribe minimum 5-year record retention.
Q39. Under PMLA, failure to maintain records or report transactions can lead to:
a) Only warning letter
b) Monetary penalty and other action
c) Only suspension of branch manager
d) Income tax refund
Answer: b) Monetary penalty and other action
Explanation: Director FIU-IND can impose penalties and issue directions.
Q40. Which of the following is a function of FIU-IND?
a) Issuing currency
b) Collecting, analysing and disseminating information on suspicious transactions
c) Issuing banking licences
d) Monitoring stock markets
Answer: b) Collecting, analysing and disseminating information on suspicious transactions
Explanation: FIU-IND is India’s financial intelligence unit. 👉 (HIGHLY IMPORTANT)
Q41. “Designated Non-Financial Businesses and Professions” (DNFBPs) under AML generally include:
a) Only banks
b) Lawyers, accountants, real estate agents, dealers in precious metals, etc.
c) Only stock exchanges
d) Only co-operative banks
Answer: b) Lawyers, accountants, real estate agents, dealers in precious metals, etc.
Explanation: DNFBPs are non-financial entities exposed to ML risk.
Q42. SEBI’s AML guidelines are applicable mainly to:
a) Banks only
b) Insurance companies
c) Securities market intermediaries
d) NBFCs only
Answer: c) Securities market intermediaries
Explanation: Brokers, mutual fund houses, etc., follow SEBI’s AML circulars.
Q43. In India, KYC norms for banks are primarily issued as:
a) Master Direction
b) Ordinance
c) Constitutional Amendment
d) Tax circular
Answer: a) Master Direction
Explanation: RBI has issued “Master Direction – Know Your Customer (KYC) Direction, 2016”. Reserve Bank of India+1
Q44. Which of the following powers is available under PMLA?
a) Attachment and confiscation of property involved in money laundering
b) Only closure of customer account
c) Only warning to bank employee
d) Appointment of bank chairman
Answer: a) Attachment and confiscation of property involved in money laundering
Explanation: PMLA provides for attachment, adjudication and confiscation.
Q45. The term “principal officer” in AML framework refers to:
a) Branch manager
b) Person designated by reporting entity to ensure compliance and reporting to FIU-IND
c) Auditor of the bank
d) Company secretary
Answer: b) Person designated by reporting entity to ensure compliance and reporting to FIU-IND
Explanation: Principal officer is key AML liaison with FIU-IND.
Q46. Under PMLA, penalties for non-compliance are imposed by:
a) RBI Governor
b) Director, FIU-IND
c) SEBI Chairman
d) Finance Minister
Answer: b) Director, FIU-IND
Explanation: Director, FIU-IND can levy monetary penalties on reporting entities.
Q47. “Obligated entities” in global AML standards are similar to which term used in India?
a) Service providers
b) Reporting entities
c) Legal entities
d) Joint ventures
Answer: b) Reporting entities
Explanation: Reporting entity is PMLA’s term for entities with AML duties.
Q48. KYC/AML obligations for banks arise mainly from:
a) Internal HR policy
b) RBI Directions and PMLA provisions
c) State government orders
d) Labour Laws
Answer: b) RBI Directions and PMLA provisions
Explanation: Legal basis comes from RBI KYC directions and PMLA.
Q49. Which one of the following statements is TRUE?
a) PMLA deals only with cash transactions
b) PMLA covers all forms of property derived from criminal activities
c) PMLA applies only to foreign nationals
d) PMLA applies only to stock brokers
Answer: b) PMLA covers all forms of property derived from criminal activities
Explanation: “Proceeds of crime” includes any property, not just cash. 👉 (HIGHLY IMPORTANT)
Q50. In India, AML guidelines for NBFCs are issued by:
a) IRDAI
b) SEBI
c) RBI
d) Ministry of Corporate Affairs
Answer: c) RBI
Explanation: NBFCs are regulated by RBI and follow its KYC/AML Directions.
👥 CHAPTER 3 – KYC, CDD & RISK-BASED APPROACH (Q51–Q70)
Q51. Customer Due Diligence (CDD) mainly involves:
a) Marketing bank products
b) Collecting and verifying customer identity and assessing risk
c) Providing locker facility
d) Processing cheque return
Answer: b) Collecting and verifying customer identity and assessing risk
Explanation: CDD is the backbone of AML controls. 👉 (HIGHLY IMPORTANT)
Q52. Enhanced Due Diligence (EDD) is required for:
a) Low-risk customers only
b) All walk-in customers
c) High-risk customers like PEPs, non-residents, complex structures
d) Only staff accounts
Answer: c) High-risk customers like PEPs, non-residents, complex structures
Explanation: EDD applies where ML/TF risk is higher.
Q53. Risk-based approach in AML means:
a) Same checks for all customers
b) More checks where risk is higher and simpler checks where risk is lower
c) Ignoring small accounts
d) Checking only corporate customers
Answer: b) More checks where risk is higher and simpler checks where risk is lower
Explanation: Resources are allocated according to risk level. 👉 (HIGHLY IMPORTANT)
Q54. Periodic updation of KYC for high-risk customers should be done at least once in:
a) 1 year
b) 2 years
c) 8 years
d) 10 years
Answer: b) 2 years
Explanation: RBI FAQs prescribe 2 years for high-risk customers. Reserve Bank of India
Q55. For medium-risk customers, periodic KYC updation should be at least once in:
a) 2 years
b) 5 years
c) 8 years
d) 10 years
Answer: c) 8 years
Explanation: Medium risk – at least every 8 years. Reserve Bank of India
Q56. For low-risk customers, periodic KYC updation should be at least once in:
a) 2 years
b) 5 years
c) 8 years
d) 10 years
Answer: d) 10 years
Explanation: Low risk – at least every 10 years. Reserve Bank of India
Q57. Which of the following is NOT generally accepted as an Officially Valid Document (OVD) for KYC in India (for individuals)?
a) Aadhaar
b) PAN card
c) Driving licence
d) Electricity bill in friend’s name
Answer: d) Electricity bill in friend’s name
Explanation: OVD must relate to the customer, not a third party.
Q58. Ongoing due diligence mainly means:
a) KYC done only at account opening
b) Continuous monitoring of transactions and updating customer information
c) Only annual income verification
d) Only branch inspection
Answer: b) Continuous monitoring of transactions and updating customer information
Explanation: AML is not one-time; it is continuous. 👉 (HIGHLY IMPORTANT)
Q59. Which is the FIRST step in a sound AML program in a bank?
a) Filing STRs
b) Customer acceptance policy and proper KYC
c) Charging higher service charges
d) Issuing more credit cards
Answer: b) Customer acceptance policy and proper KYC
Explanation: Accept only those customers who can be properly identified and monitored.
Q60. “Low-risk” category customers generally include:
a) PEPs
b) Charitable trusts receiving foreign funds
c) Salaried employees with known employers
d) Shell companies
Answer: c) Salaried employees with known employers
Explanation: Salaried employees generally have predictable income and transparent profiles.
Q61. Which customer is MOST LIKELY to be classified as high risk?
a) Farmer with KCC
b) Government employee with salary account
c) Non-resident customer with complex structures
d) Normal pensioner
Answer: c) Non-resident customer with complex structures
Explanation: NRI with complex structures often require EDD.
Q62. In KYC context, “CIP” stands for:
a) Customer Information Policy
b) Customer Identification Procedure
c) Credit Investigation Process
d) Corporate Income Proof
Answer: b) Customer Identification Procedure
Explanation: CIP is part of KYC framework.
Q63. The purpose of capturing ‘occupation’ and ‘expected transaction profile’ during KYC is to:
a) Calculate income tax
b) Assess credit rating
c) Judge whether future transactions are consistent or suspicious
d) Open fixed deposit
Answer: c) Judge whether future transactions are consistent or suspicious
Explanation: Helps in monitoring for unusual behaviour.
Q64. Simplified Due Diligence (SDD) is generally applied to:
a) High-risk customers
b) Very low-risk customers like small accounts under financial inclusion
c) All corporate customers
d) All NRI accounts
Answer: b) Very low-risk customers like small accounts under financial inclusion
Explanation: SDD reduces documentation for low-risk groups.
Q65. E-KYC using Aadhaar primarily helps AML by:
a) Allowing anonymous accounts
b) Ensuring quick and reliable identity verification
c) Avoiding PAN requirement
d) Stopping monitoring
Answer: b) Ensuring quick and reliable identity verification
Explanation: e-KYC supports accurate and real-time identity checks.
Q66. “Customer Acceptance Policy” in AML framework decides:
a) Which insurance products to sell
b) What kind of customers bank will accept or reject and under what conditions
c) Staff salary structure
d) Branch expansion plan
Answer: b) What kind of customers bank will accept or reject and under what conditions
Explanation: CAP defines criteria for onboarding customers.
Q67. When a customer refuses to provide KYC documents, the bank should normally:
a) Open the account with zero balance
b) Allow only ATM transactions
c) Not open the account or close existing relationship, subject to law
d) Ignore KYC norms for small accounts
Answer: c) Not open the account or close existing relationship, subject to law
Explanation: Lack of KYC is a serious AML issue.
Q68. In case of joint accounts, due diligence should be conducted on:
a) Only first holder
b) Only highest income holder
c) All joint holders
d) Only introducer
Answer: c) All joint holders
Explanation: Every account holder must be properly identified.
Q69. “Beneficial ownership” threshold in many AML frameworks for companies is usually:
a) 1%
b) 10%
c) 25% or more of shares or voting rights
d) 51% only
Answer: c) 25% or more of shares or voting rights
Explanation: 25% is a common benchmark for beneficial ownership (exact threshold can vary by regulation).
Q70. Risk categorisation of customers is done to:
a) Decide interest rates
b) Allocate different levels of monitoring and KYC updation
c) Decide number of cheque books
d) Decide locker rent
Answer: b) Allocate different levels of monitoring and KYC updation
Explanation: Higher risk = closer monitoring and more frequent KYC. 👉 (HIGHLY IMPORTANT)
🏦 CHAPTER 4 – REPORTING, RED FLAGS & BANK OPERATIONS (Q71–Q90)
Q71. CTR stands for:
a) Cash Transaction Report
b) Cash Transfer Ratio
c) Credit Transaction Record
d) Corporate Tax Report
Answer: a) Cash Transaction Report
Explanation: CTR is filed for large cash transactions to FIU-IND. 👉 (HIGHLY IMPORTANT)
Q72. Under PMLA, CTR must be reported for cash transactions exceeding which threshold?
a) ₹1 lakh in a day
b) ₹5 lakh in a day
c) ₹10 lakh in a day
d) ₹50 lakh in a day
Answer: c) ₹10 lakh in a day
Explanation: Cash transactions above ₹10 lakh or integrally connected series are reportable in CTR. AML India+1
Q73. CTRs are generally required to be filed with FIU-IND by banks:
a) Daily
b) Weekly
c) By the 15th of the succeeding month
d) Once a year
Answer: c) By the 15th of the succeeding month
Explanation: CTRs must be filed monthly, by 15th of next month. Finlaw
Q74. STR stands for:
a) Short-Term Report
b) Suspicious Transaction Report
c) Special Treasury Report
d) Secured Transaction Record
Answer: b) Suspicious Transaction Report
Explanation: STR is filed when a transaction appears suspicious, irrespective of amount.
Q75. STR must be submitted to FIU-IND:
a) Only at year end
b) Within 7 working days of forming suspicion
c) Within 30 days of account opening
d) Within 1 year of transaction
Answer: b) Within 7 working days of forming suspicion
Explanation: PML Rules require STRs within 7 working days after suspicion is formed. Tax India Online+1 👉 (HIGHLY IMPORTANT)
Q76. Which of the following is TRUE about STR?
a) It is filed only for cash transactions
b) It must be filed even if transaction amount is small
c) It requires customer consent
d) It is shared with customer as acknowledgement
Answer: b) It must be filed even if transaction amount is small
Explanation: Suspicion can arise at any amount; threshold is not relevant.
Q77. While filing an STR, the bank should:
a) Immediately inform the customer
b) Avoid “tipping off” the customer
c) Close the account without reporting
d) Tell staff to ignore transactions
Answer: b) Avoid “tipping off” the customer
Explanation: Informing customer may compromise investigation. 👉 (HIGHLY IMPORTANT)
Q78. Which of the following is a red flag for possible money laundering?
a) Regular EMI payments
b) Multiple high-value remittances to high-risk countries without clear purpose
c) Small recurring deposits
d) Utility bill payments
Answer: b) Multiple high-value remittances to high-risk countries without clear purpose
Explanation: Pattern of unexplained transfers to risky jurisdictions is suspicious.
Q79. “Structuring” of transactions refers to:
a) Designing loan products
b) Splitting one large transaction into several small ones below reporting threshold
c) Combining multiple small loans
d) Preparing financial statements
Answer: b) Splitting one large transaction into several small ones below reporting threshold
Explanation: Structuring is done to avoid detection and reporting.
Q80. Which function in a bank is primarily responsible for monitoring transactions for AML?
a) Marketing department
b) Treasury
c) Compliance / AML cell
d) Clearing section
Answer: c) Compliance / AML cell
Explanation: Dedicated AML/Compliance teams oversee monitoring.
Q81. Which of the following is MOST LIKELY to be considered suspicious?
a) Customer depositing salary every month
b) Sudden large cash deposit by a dormant account holder, followed by immediate outward transfer
c) Payment of monthly rent
d) Payment of school fees
Answer: b) Sudden large cash deposit by a dormant account holder, followed by immediate outward transfer
Explanation: Activity inconsistent with profile and dormancy is suspicious.
Q82. A good AML transaction monitoring system should:
a) Generate alerts based on defined scenarios and thresholds
b) Only display balances
c) Ignore historical patterns
d) Focus only on loans
Answer: a) Generate alerts based on defined scenarios and thresholds
Explanation: Systems must detect unusual patterns and generate alerts.
Q83. In case of repeated STR-worthy activity by a customer, the bank may consider:
a) Offering premium products
b) Upgrading to gold account
c) Exiting the relationship, after appropriate internal approval
d) Providing overdraft facility
Answer: c) Exiting the relationship, after appropriate internal approval
Explanation: Continuing relationship with high-risk suspicious customer is risky.
Q84. Principal Officer for AML in a bank is generally located at:
a) Any branch
b) Head Office
c) Village branch only
d) Zonal office only
Answer: b) Head Office
Explanation: Principal Officer is usually a senior official at Head Office.
Q85. Which of the following should be part of staff AML training?
a) Only account opening procedure
b) Red flag indicators, reporting procedures, KYC requirements
c) Product pricing
d) Branch decor
Answer: b) Red flag indicators, reporting procedures, KYC requirements
Explanation: Staff must know how to detect and report suspicious activity. 👉 (HIGHLY IMPORTANT)
Q86. Internal audit in AML should primarily:
a) Check furniture condition
b) Review effectiveness of AML controls and adherence to policy
c) Only verify cash
d) Only check passbooks
Answer: b) Review effectiveness of AML controls and adherence to policy
Explanation: Audit ensures system is working as designed.
Q87. Non-face-to-face customers (e.g., online onboarding) are usually treated as:
a) Lower risk
b) Equal or higher risk depending on controls
c) No risk
d) Risk-free due to technology
Answer: b) Equal or higher risk depending on controls
Explanation: Non-face-to-face may increase risk; proper e-KYC reduces it.
Q88. Which reporting is linked to cross-border wire transfers?
a) CTR only
b) STR only
c) CBWTR (Cross Border Wire Transfer Report) where applicable
d) No reporting at all
Answer: c) CBWTR (Cross Border Wire Transfer Report) where applicable
Explanation: Some frameworks require separate reporting for cross-border wires. IDBI Intech Ltd
Q89. “Name screening” in AML refers to:
a) Checking spelling of customer name
b) Screening customer and related parties against sanctions, PEP and negative lists
c) Advertising bank products
d) Designing branch name board
Answer: b) Screening customer and related parties against sanctions, PEP and negative lists
Explanation: Name screening helps identify high-risk or prohibited parties.
Q90. Cash-intensive businesses (e.g., casinos, bars, petrol pumps) are often considered:
a) Low risk
b) Medium or high risk depending on controls
c) Risk-free
d) Automatically exempt
Answer: b) Medium or high risk depending on controls
Explanation: Heavy use of cash may make them vulnerable to ML.
💻 CHAPTER 5 – RECENT DEVELOPMENTS, DIGITAL & CRYPTO (Q91–Q100)
Q91. In India, entities dealing in Virtual Digital Assets (VDAs), such as crypto exchanges, have been brought under PMLA as:
a) Non-reporting entities
b) Reporting entities
c) Only tax filers
d) Exempted entities
Answer: b) Reporting entities
Explanation: March 2023 notification brought VDA service providers under PMLA as reporting entities. India Briefing+1 👉 (HIGHLY IMPORTANT)
Q92. AML obligations of VDA service providers are now similar to those of:
a) Only cooperative societies
b) Traditional financial institutions and intermediaries
c) Self-help groups
d) Farmers
Answer: b) Traditional financial institutions and intermediaries
Explanation: They must follow KYC, CDD, STR/CTR reporting like other reporting entities. indiajuris+1
Q93. How does use of blockchain technology support AML efforts?
a) By making all transactions anonymous and untraceable
b) By providing transparent and tamper-resistant transaction records
c) By eliminating need for KYC
d) By allowing unlimited cash deposits
Answer: b) By providing transparent and tamper-resistant transaction records
Explanation: Blockchain enables immutable audit trail helpful for investigations.
Q94. Central Bank Digital Currency (CBDC) like RBI’s Digital Rupee can support AML because:
a) It completely hides transaction data
b) It enables traceable and programmable digital transactions
c) It is issued by commercial banks
d) It eliminates reporting requirements
Answer: b) It enables traceable and programmable digital transactions
Explanation: CBDC can provide better visibility and control on money flows (subject to design).
Q95. Which technology is increasingly used by banks for AML transaction monitoring?
a) Typewriters
b) Artificial Intelligence and Machine Learning
c) Fax machines
d) Dot matrix printers
Answer: b) Artificial Intelligence and Machine Learning
Explanation: AI/ML detect complex suspicious patterns and anomalies.
Q96. In digital onboarding, video KYC helps AML by:
a) Avoiding face-to-face verification
b) Enabling remote, recorded face verification with document checking
c) Eliminating need for any document
d) Allowing anonymous accounts
Answer: b) Enabling remote, recorded face verification with document checking
Explanation: Video KYC combines convenience with AML compliance.
Q97. NPCI’s digital payment infrastructure (UPI, IMPS, etc.) impacts AML mainly by:
a) Moving transactions from cash to traceable digital channels
b) Encouraging cash usage
c) Eliminating KYC requirements
d) Bypassing banks
Answer: a) Moving transactions from cash to traceable digital channels
Explanation: Digital payments create audit trail making ML more difficult.
Q98. In case of non-compliance with PMLA by offshore VDA service providers dealing with Indian users, FIU-IND can:
a) Only send advisory
b) Issue notices and recommend blocking access or impose penalties
c) Offer subsidy
d) Allow unlimited operations
Answer: b) Issue notices and recommend blocking access or impose penalties
Explanation: FIU-IND has been issuing notices to offshore VDA SPs for non-compliance. Press Information Bureau+1
Q99. Use of data analytics in AML primarily helps in:
a) Reducing bank staff
b) Identifying unusual transaction patterns across products and time
c) Increasing branch count
d) Printing cheque books
Answer: b) Identifying unusual transaction patterns across products and time
Explanation: Analytics improves detection of sophisticated ML schemes.
Q100. In future, AML in banking is expected to become more:
a) Paper-based and manual
b) Technology-driven with real-time monitoring and stronger regulations
c) Optional for small banks
d) Relaxed due to customer convenience
Answer: b) Technology-driven with real-time monitoring and stronger regulations
Explanation: Trend is towards tighter AML with advanced tech and stricter oversight. 👉 (HIGHLY IMPORTANT)
⏳ 2-Minute Quick Revision Sheet
✔ PMLA 2002 – Main AML law
✔ FIU-IND – receives STR & CTR
✔ STR – within 7 days
✔ CTR – monthly, > ₹10 lakh
✔ FATF – global AML body; 40 Recommendations
✔ 3 Stages: Placement – Layering – Integration
✔ KYC – Aadhaar, PAN mandatory
✔ PEP – high risk
✔ Technologies – AI, ML, Blockchain, CBDC
✔ Methods: Smurfing, Shell companies, Real estate, Crypto, Hawala