UPSC Internal Security – Chapter 10: Money Laundering and Its Prevention (21 MCQs)

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UPSC Internal Security – Chapter 10: Money Laundering and Its Prevention (21 MCQs) – 21 questions, subject: Internal Security. Every question has the correct answer with a one-line explanation; tap "Show Answer". Free practice for TNPSC, UPSC, SSC, Bank and RRB exams – Shanmugam IAS Academy, Coimbatore.

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1.  

The first stage of money laundering, in which illegal cash enters the financial system, is called:

Correct Answer: B [placement]

Explanation:

Placement is the first stage, when illegal cash is first put into banks, gold, property or other parts of the financial system.

2.  

The PMLA came into force on:

Correct Answer: B [1 July 2005]

Explanation:

The PMLA, enacted as Act 15 of 2003, was brought into force from 1 July 2005.

3.  

A person can be declared a fugitive economic offender under the FEOA, 2018 if the offence involves at least:

Correct Answer: C [₹100 crore]

Explanation:

The FEOA applies to persons who flee India to avoid trial in scheduled economic offences involving ₹100 crore or more.

4.  

The Financial Intelligence Unit – India (FIU-IND) was set up in:

Correct Answer: D [2004]

Explanation:

FIU-IND was set up by the Government in 2004 as the central national agency for receiving and analysing financial intelligence.

5.  

In Vijay Madanlal Choudhary v. Union of India (2022), the Supreme Court held that:

Correct Answer: A [the ECIR is an internal document and not an FIR]

Explanation:

The Court held that an ECIR is an internal ED document, not an FIR, so a copy need not be supplied.

6.  

The Financial Action Task Force was established in 1989 by the:

Correct Answer: B [G7]

Explanation:

at Paris.

7.  

India became a full member of the FATF in:

Correct Answer: C [2010]

Explanation:

India was admitted as a full member of the FATF in 2010, after earlier observer status.

8.  

"Hawala" refers to:

Correct Answer: C [an informal system of moving money through brokers without physical transfer]

Explanation:

Hawala moves value through a trusted network of brokers who settle accounts among themselves, without money physically crossing borders.

9.  

Since March 2023, which of the following have been brought under the PMLA as reporting entities?

Correct Answer: D [virtual digital asset service providers]

Explanation:

A Finance Ministry notification of March 2023 made virtual digital asset service providers reporting entities under the PMLA.

10.  

Consider the following statements:

1. The ED enforces both the PMLA and FEMA.
2. FIU-IND is a member of the Egmont Group.
3. FEMA is a criminal law that replaced the PMLA.

Which of the statements given above is/are correct?

Correct Answer: B [1 and 2 only]

Explanation:

The ED enforces both the PMLA and FEMA, and FIU-IND is an Egmont Group member; statement 3 is false.

11.  

Assertion (A): Terror financing can involve money from legal sources.

Reason (R): Terror financing is concerned with the use of money for violence, not only its origin.

Correct Answer: A [Both A and R are true, and R is the correct explanation of A]

Explanation:

Both are true, and R explains A: since terror financing is defined by use for violence, even legally earned money can fund it.

12.  

The "twin conditions" for bail under the PMLA are found in Section:

Correct Answer: C [45]

Explanation:

Section 45 of the PMLA lays down the twin conditions that must be met before an accused can get bail.

13.  

In Pankaj Bansal v. Union of India (2023), the Supreme Court held that:

Correct Answer: B [the grounds of arrest must be given in writing]

Explanation:

In Pankaj Bansal (2023) the Court ruled that the ED must give the arrested person the grounds of arrest in writing.

14.  

India's FATF Mutual Evaluation Report adopted in June 2024 placed it in the category of:

Correct Answer: A [regular follow-up]

Explanation:

The FATF plenary of June 2024 placed India in regular follow-up, the best outcome of a mutual evaluation.

15.  

Which of the following is the THIRD stage of money laundering?

Correct Answer: D [integration]

Explanation:

Integration is the third and last stage, when laundered money re-enters the economy as apparently legitimate income or assets.

16.  

The Serious Fraud Investigation Office works under the Ministry of:

Correct Answer: C [Corporate Affairs]

Explanation:

The SFIO is a statutory multi-disciplinary agency under the Ministry of Corporate Affairs that probes serious corporate fraud.

17.  

Arrange the following in chronological order:

1. Vijay Madanlal Choudhary judgment
2. Fugitive Economic Offenders Act
3. Setting up of FIU-IND
4. Enactment of the PMLA

Select the correct answer using the code given below:

Correct Answer: C [4-3-2-1]

Explanation:

2002, 2004, 2018, 2022.

18.  

FEMA, 1999 replaced the:

Correct Answer: A [Foreign Exchange Regulation Act]

Explanation:

FERA, 1973.

19.  

FATF's "black list" refers to:

Correct Answer: D [high-risk jurisdictions subject to a call for action]

Explanation:

The FATF black list names high-risk jurisdictions subject to a call for action, such as North Korea, Iran and Myanmar.

20.  

The Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act was enacted in:

Correct Answer: A [2015]

Explanation:

The Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act was passed in 2015.

21.  
UPSC Prelims 2025

With reference to the Government of India, consider the following information:

Organization : Some of its functions : It works under

I. Directorate of Enforcement : Enforcement of the Fugitive Economic Offenders Act, 2018 : Internal Security Division-I, Ministry of Home Affairs

II. Directorate of Revenue Intelligence : Enforces the provisions of the Customs Act, 1962 : Department of Revenue, Ministry of Finance

III. Directorate General of Systems and Data Management : Carrying out big data analytics to assist tax officers for better policy and nabbing tax evaders : Department of Revenue, Ministry of Finance

In how many of the above rows is the information correctly matched?

Correct Answer: A [Only one]

Explanation:

only Row II is correctly matched. Row I is wrong: the ED enforces the Fugitive Economic Offenders Act but works under the Department of Revenue, Ministry of Finance, not the Ministry of Home Affairs. Row II is right: the DRI enforces the Customs Act, 1962 under the Department of Revenue. Row III is wrong: big data analytics to help tax officers is the function of the Directorate General of Analytics and Risk Management (DGARM, CBIC, set up in 2017); the DGSDM runs the IT systems.

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