Under the PMLA, how long must a reporting entity preserve records of the transactions it is required to report?

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.