Anti-Money Laundering in India: PMLA, ED and FIU-IND

The correct answer is B, placement, layering and integration. Placement comes first because the criminal must get cash into the financial system, which he does through small deposits, the purchase of bearer instruments or by mixing the cash with the takings of a shop or a petrol pump. Layering comes next, moving the money through many accounts, shell companies, offshore jurisdictions and paper transactions so that the audit trail is broken. Integration comes last, when the money reaches the owner looking lawful, as property, a business profit or a loan repayment. Option A is wrong because layering cannot precede placement; there is nothing in the system to layer until the cash has been placed. Option C is wrong because integration is the final stage by definition, the point at which the laundering has succeeded. Option D is wrong for the same reason: integration cannot come before layering, since it is layering that makes the money appear clean enough to be integrated.

The correct answer is C, 2005. The Prevention of Money Laundering Act was passed by Parliament in 2002 and is numbered as an Act of that year, but it was brought into force only on the first of July 2005, together with the Prevention of Money-laundering Maintenance of Records Rules of 2005, which set out the reporting duties of banks. Candidates must keep the two dates apart because papers ask for either one. Option A is wrong because 2002 is the year of enactment, the year that appears in the short title of the Act, not the year of commencement. Option B is wrong because 2003 is the year the Act received the assent of the President, in January of that year. Option D is wrong because 2012 is the year of a major amendment, which widened the definition of the proceeds of crime and removed the earlier monetary threshold for some scheduled offences; later amendments followed in 2019.

The correct answer is B, the Enforcement Directorate. The Directorate, which works under the Department of Revenue in the Ministry of Finance and traces its origin to the Enforcement Unit set up on the first of May 1956, registers cases under the Act, attaches property provisionally, arrests, and files prosecution complaints in the Special Court. It also enforces the Foreign Exchange Management Act and the Fugitive Economic Offenders Act. Option A is wrong because the Financial Intelligence Unit only receives, processes, analyses and disseminates reports from banks; it has no power to arrest or prosecute. Option C is wrong because the Central Bureau of Investigation investigates the predicate or scheduled offence, such as corruption or cheating, and the money laundering case that follows is taken up by the Enforcement Directorate. Option D is wrong because the Reserve Bank supervises compliance by banks and may penalise them, but does not prosecute laundering.

The correct answer is C, 2004. The Financial Intelligence Unit India was set up by the Government of India in November 2004 as the central national agency to receive, process, analyse and disseminate information about suspect financial transactions. It is the national hub of financial intelligence, works under the Department of Revenue in the Ministry of Finance and reports to the Economic Intelligence Council, which the Union Finance Minister chairs. Option A is wrong because no such unit existed in 1996; the law that created the reporting system had not yet been passed. Option B is wrong because 2002 is the year the Prevention of Money Laundering Act was enacted, two years before the unit was set up and three years before the Act came into force. Option D is wrong because 2010 is the year India became a full member of the Financial Action Task Force, by which time the unit had been working for six years.

The correct answer is C, ten lakh rupees in a month. Under the Prevention of Money-laundering Maintenance of Records Rules of 2005, a reporting entity must report all cash transactions of a value of more than ten lakh rupees, or their equivalent in foreign currency, and all series of integrally connected cash transactions that together exceed that amount within a month. The report goes to the Financial Intelligence Unit by the fifteenth day of the following month. Option A is wrong because one lakh rupees is not a reporting threshold under these rules, although banks watch such amounts internally for risk profiling. Option B is wrong because five lakh rupees is the threshold for a cross-border wire transfer report, not a cash transaction report. Option D is wrong because fifty lakh rupees is not a threshold under these rules at all; mixing up these three figures is the usual error in this question.

The correct answer is A, seven working days. The rules require a reporting entity to furnish a suspicious transaction report to the Financial Intelligence Unit not later than seven working days from the date on which it is satisfied that the transaction is suspicious. There is no minimum value, the report covers attempted as well as completed transactions, and the bank must not tip off the customer that a report has been filed. Option B is wrong because thirty days is not the limit for this report; a delay of that length would defeat its purpose, which is to give intelligence while the money can still be traced. Option C is wrong because the fifteenth day of the following month is the due date for the monthly cash transaction report, not for a suspicious transaction report. Option D is wrong because ninety days has no place in these rules; the figure candidates may be recalling is the time limits in attachment and adjudication proceedings.

The correct answer is B, three to seven years. Section 4 provides that whoever commits the offence of money laundering shall be punishable with rigorous imprisonment for a term of not less than three years, which may extend to seven years, and with a fine. Where the proceeds of crime involved relate to an offence under paragraph two of Part A of the Schedule, that is an offence under the Narcotic Drugs and Psychotropic Substances Act, the maximum rises to ten years. Option A is wrong because one to three years understates the minimum; three years is the floor, and the court cannot go below it. Option C is wrong because five to ten years is not the general range, though ten years is the enhanced maximum in narcotics-linked cases. Option D is wrong because seven to fourteen years belongs to other special statutes and not to this section; seven years is the ordinary ceiling here, not the floor.

The correct answer is C, one hundred and eighty days. Section 5 allows the Director or an authorised officer, on reasons to be recorded in writing, to attach property believed to be the proceeds of crime provisionally for a period of one hundred and eighty days. Within that period the Adjudicating Authority must decide whether to confirm the attachment, failing which the attachment lapses and the property is released. The officer must also send the order and the material to the Adjudicating Authority in a sealed envelope. Option A is wrong because thirty days is the period within which an appeal may be filed in some proceedings, not the attachment period. Option B is wrong because ninety days has no application to provisional attachment under this section. Option D is wrong because one year would leave property frozen far too long without any adjudication, which is precisely what the one hundred and eighty day limit prevents.

The correct answer is B, five years from the date of the transaction. Section 12 requires every reporting entity to maintain a record of all transactions of the prescribed nature and value for a period of five years from the date of the transaction between the client and the entity, and to maintain records of the identity of its clients for five years after the business relationship ends or the account is closed. The records must allow an individual transaction to be reconstructed if an authority calls for it. Option A is wrong because three years is shorter than the statutory period and would leave the trail cold in long investigations. Option C is wrong because eight years is not prescribed anywhere in the Act or the rules. Option D is wrong because fifteen years is far longer than required; the earlier law prescribed ten years, which was reduced to five by amendment.

The correct answer is B, 1989. The Financial Action Task Force was set up in 1989 at the summit of the Group of Seven industrial countries held in Paris, and its secretariat is housed at the headquarters of the Organisation for Economic Co-operation and Development in Paris. It issues the Forty Recommendations on money laundering and terrorist financing and reviews member countries through mutual evaluations, placing weak jurisdictions on the increased monitoring list, informally the grey list, or the call for action list, informally the black list. India became a full member in June 2010. Option A is wrong because 1974 is the year the Basel Committee on Banking Supervision was set up, a different body dealing with prudential regulation. Option C is wrong because 1995 is the year the Egmont Group of financial intelligence units was founded in Brussels. Option D is wrong because 2001 is the year the Task Force extended its mandate to terrorist financing, not the year of its creation.

The correct answer is A. The Financial Intelligence Unit India works under the Department of Revenue in the Ministry of Finance and reports to the Economic Intelligence Council, the apex body on economic offences, which is chaired by the Union Finance Minister. The Council coordinates the work of the enforcement and intelligence agencies that deal with economic crime. Option B is wrong because the Central Board of Direct Taxes administers income tax and is a sister body under the same department, not the unit's reporting authority. Option C is wrong because the Monetary Policy Committee of the Reserve Bank fixes the policy interest rate to meet the inflation target and has nothing to do with financial intelligence. Option D is wrong on two counts: the Financial Stability and Development Council deals with macro-prudential supervision and inter-regulatory coordination, and it is chaired by the Union Finance Minister, not the Prime Minister.

The correct answer is C, one hundred crore rupees. The Fugitive Economic Offenders Act of 2018 applies where a warrant of arrest has been issued for a scheduled offence involving a value of one hundred crore rupees or more and the person has left India to avoid prosecution, or refuses to return to face it. A Special Court designated under the Prevention of Money Laundering Act may then declare the person a fugitive economic offender, after which the central government may confiscate both the proceeds of crime and other property of the offender, including benami property, and the person may be barred from pursuing civil claims. Option A is wrong because one crore rupees is far below the statutory threshold. Option B is wrong because ten crore rupees is likewise below it. Option D is wrong because one thousand crore rupees would exclude almost every case the Act was meant to reach.