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NIBAF AML & CFT study materials
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NIBAF AML & CFT practice questions

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Question 1AML/CFT Foundations, Terminology and the International Framework

Which body issues the Forty Recommendations that form the global baseline for anti-money laundering standards?

  1. The Basel Committee on Banking Supervision
  2. The World Trade Organization
  3. The Financial Action Task Force Correct answer.
  4. The International Monetary Fund

Explanation

The Financial Action Task Force is the intergovernmental body that sets the FATF Recommendations, which are the internationally endorsed baseline for AML and counter-terrorist financing regimes. Other bodies issue related standards in their own fields but do not own the Forty Recommendations.

Question 2AML/CFT Foundations, Terminology and the International Framework

Under the FATF terminology, what does the acronym CFT refer to?

  1. Certified Financial Trustee
  2. Customer Financial Tracking
  3. Combating the Financing of Terrorism Correct answer.
  4. Cross-border Fund Transfer

Explanation

CFT stands for Combating the Financing of Terrorism, the set of legal, regulatory and operational measures aimed at denying terrorists and their supporters access to funds. It is paired with AML in the standard shorthand for the combined regime.

Question 3AML/CFT Foundations, Terminology and the International Framework

Which activity is the core purpose of money laundering as defined in international standards?

  1. Freezing accounts pending a court order
  2. Recording every cash deposit above a threshold with the regulator
  3. Converting foreign currency at the official exchange rate
  4. Concealing the illicit origin of proceeds so they appear legitimate Correct answer.

Explanation

Money laundering is the process of disguising the true origin and ownership of criminally derived proceeds so they can be used as if lawfully obtained. Threshold reporting, freezing and currency conversion are regulatory or banking operations, not the definition of laundering.

Question 4AML/CFT Foundations, Terminology and the International Framework

In the classic three-stage model of money laundering, which stage involves introducing illicit cash into the financial system?

  1. Placement Correct answer.
  2. Repatriation
  3. Integration
  4. Layering

Explanation

Placement is the first stage, where criminal proceeds first enter the financial system, for example through cash deposits or purchases of instruments. Layering then obscures the trail, and integration returns the funds to the economy in apparently legitimate form.

Question 5AML/CFT Foundations, Terminology and the International Framework

Which statement best describes a predicate offence in the AML context?

  1. A procedural defect that invalidates a customer identification record
  2. The underlying crime that generates the proceeds later laundered Correct answer.
  3. An administrative penalty imposed for late regulatory filing
  4. An offence committed by the reporting officer when filing a suspicious transaction report

Explanation

A predicate offence is the criminal conduct, such as drug trafficking or fraud, that produces the property subsequently laundered. Laundering liability attaches to dealing with proceeds of that underlying crime.

Question 6AML/CFT Foundations, Terminology and the International Framework

What is the primary purpose of a suspicious transaction report submitted to the financial intelligence unit?

  1. To notify the customer that their account is under review
  2. To obtain the customer's consent for continuing the relationship
  3. To provide authorities with intelligence on suspected illicit activity Correct answer.
  4. To request reimbursement of investigation costs from the regulator

Explanation

A suspicious transaction report supplies the financial intelligence unit with information about activity suspected to involve criminal proceeds or terrorist financing so it can be analysed and disseminated. It is an intelligence channel, not a customer communication or a billing mechanism.

Question 7AML/CFT Foundations, Terminology and the International Framework

Which principle underlies the FATF requirement that financial institutions identify and verify their customers?

  1. Fungibility
  2. Caveat emptor
  3. Know your customer Correct answer.
  4. Force majeure

Explanation

Know your customer is the principle requiring institutions to establish the identity of customers and understand their activity before and during the relationship. It underpins customer due diligence and ongoing monitoring obligations.

Question 8AML/CFT Foundations, Terminology and the International Framework

Which body typically receives and analyses suspicious transaction reports at the national level?

  1. The deposit insurance corporation
  2. The central bank's monetary policy committee
  3. The financial intelligence unit Correct answer.
  4. The national stock exchange listing department

Explanation

The financial intelligence unit is the national centre responsible for receiving, analysing and disseminating suspicious transaction reports and related information. FATF standards require every country to establish such a unit.

Question 9AML/CFT Foundations, Terminology and the International Framework

A customer with no apparent business rationale routes funds through several shell companies in different jurisdictions before buying real estate. Which laundering stage does the routing through shell companies most directly represent?

  1. Layering Correct answer.
  2. Placement
  3. Integration
  4. Predication

Explanation

Moving funds through multiple entities and jurisdictions to obscure the audit trail is the defining feature of layering. The subsequent property purchase would represent integration, while initial entry of funds would be placement.

Question 10AML/CFT Foundations, Terminology and the International Framework

A bank employee tells a client that a report about the client's account has been sent to the authorities. Which concept does this conduct most directly violate?

  1. The tipping-off prohibition Correct answer.
  2. The record retention rule
  3. The risk-based approach
  4. The threshold reporting requirement

Explanation

Disclosing that a suspicious transaction report has been made is tipping off, which is prohibited because it can alert suspects and prejudice investigation. Confidentiality of reporting is a core element of the reporting regime.

Question 11AML/CFT Foundations, Terminology and the International Framework

In FATF terminology, what distinguishes a politically exposed person from an ordinary higher-risk customer?

  1. They hold or have held a prominent public function Correct answer.
  2. They always transact in cash above the reporting threshold
  3. They are exempt from customer identification requirements
  4. They are automatically excluded from any business relationship

Explanation

A politically exposed person is defined by holding or having held a prominent public function, which creates heightened corruption and bribery risk. This status triggers enhanced due diligence, including source of wealth and source of funds scrutiny.

Question 12AML/CFT Foundations, Terminology and the International Framework

Which measure is the clearest example of enhanced due diligence rather than standard customer due diligence?

  1. Obtaining senior management approval and verifying source of wealth for a high-risk relationship Correct answer.
  2. Recording a customer's name and address at onboarding
  3. Screening a name against a sanctions list at onboarding
  4. Retaining identification records for the statutory period

Explanation

Enhanced due diligence adds measures proportionate to higher risk, such as senior management sign-off and deeper scrutiny of source of wealth and funds. Standard measures like identity capture, record retention and initial screening apply to all customers.

Question 13AML/CFT Foundations, Terminology and the International Framework

Which FATF Recommendation deals specifically with the criminalisation of terrorist financing?

  1. Recommendation 10
  2. Recommendation 5 Correct answer.
  3. Recommendation 15
  4. Recommendation 24

Explanation

Recommendation 5 requires countries to criminalise terrorist financing. Recommendation 6 instead concerns targeted financial sanctions related to terrorism and terrorist financing. Recommendation 10 covers customer due diligence, 15 new technologies, and 24 transparency of legal persons.

Question 14AML/CFT Foundations, Terminology and the International Framework

Which three organisations are the original founding members of the FATF when it was established in 1989?

  1. The United Nations Security Council
  2. The Bretton Woods institutions
  3. The G7 countries acting through the OECD Correct answer.
  4. The Basel Committee and IOSCO

Explanation

The FATF was created in 1989 at the initiative of the G7 heads of state and government, acting through the OECD, which hosted its secretariat. Its mandate has since expanded to cover terrorist financing and proliferation financing.

Question 15AML/CFT Foundations, Terminology and the International Framework

Which activity falls within the FATF definition of terrorist financing rather than money laundering?

  1. Collecting funds for an organisation designated as a terrorist entity Correct answer.
  2. Depositing the proceeds of a bank robbery into a shell company
  3. Structuring cash deposits to avoid reporting thresholds
  4. Transferring drug sale proceeds through offshore accounts

Explanation

Terrorist financing involves raising, moving or using funds for terrorist purposes, and the funds may originate from legitimate sources. Money laundering, by contrast, requires proceeds of a predicate crime such as robbery or drug trafficking.

Question 16AML/CFT Foundations, Terminology and the International Framework

A country's assessment finds that its banking sector is heavily exposed to cash-intensive trade. According to the risk-based approach, what should supervisors and institutions do first?

  1. Suspend the licences of the largest cash handlers
  2. Prohibit all cash transactions in the sector
  3. Identify and assess the specific risks before calibrating controls Correct answer.
  4. Apply identical controls to every customer regardless of profile

Explanation

The risk-based approach requires identifying and assessing risk first, then applying controls proportionate to that assessed risk. Uniform controls ignore risk differences, and blanket prohibitions or suspensions are disproportionate responses.

Question 17AML/CFT Foundations, Terminology and the International Framework

Which entity type is the primary concern of the FATF standards on transparency of beneficial ownership?

  1. Central government departments
  2. Legal persons such as shell or front companies used to conceal control Correct answer.
  3. Regulated commercial banks
  4. Publicly listed companies with dispersed shareholding

Explanation

The beneficial ownership standards target legal persons and arrangements that can be used to hide who really owns or controls assets. Adequate, accurate and timely ownership information must be available to authorities.

Question 18AML/CFT Foundations, Terminology and the International Framework

A customer requests a single large cash transaction but declines to explain the source of funds and provides inconsistent identity documents. Which obligation is most directly triggered?

  1. Increase the customer's credit limit
  2. Convert the cash to a time deposit automatically
  3. File a suspicious transaction report with the financial intelligence unit Correct answer.
  4. Refer the customer to the bank's marketing department

Explanation

Inconsistent identity information combined with an unexplained source of funds creates suspicion that must be reported to the financial intelligence unit promptly. Continuing the transaction without inquiry or reporting would breach the institution's obligations.

Question 19AML/CFT Foundations, Terminology and the International Framework

Which international instrument imposes binding obligations on all United Nations member states to freeze terrorist assets?

  1. The FATF Forty Recommendations
  2. The Wolfsberg Principles
  3. The Basel Core Principles
  4. United Nations Security Council resolutions Correct answer.

Explanation

Security Council resolutions adopted under Chapter VII create binding obligations for member states, including asset freezing of designated persons and entities. The FATF Recommendations and Wolfsberg Principles are standards and guidance, not binding treaty law.

Question 20AML/CFT Foundations, Terminology and the International Framework

Which term describes the concealment of funds intended for terrorism where the money is derived from legitimate sources such as salary or charitable donations?

  1. Cuckoo smurfing
  2. Reverse money laundering Correct answer.
  3. Structuring
  4. Smurfing

Explanation

Reverse money laundering describes the flow of clean money towards a criminal or terrorist purpose rather than the laundering of dirty money towards legitimacy. Structuring, smurfing and cuckoo smurfing describe techniques for evading reporting or moving funds anonymously.

Question 21AML/CFT Foundations, Terminology and the International Framework

An institution applies simplified due diligence to a low-risk customer. Which condition must be satisfied before doing so?

  1. The customer has agreed in writing to waive identification
  2. The customer has been known to the branch manager for many years
  3. The lower risk has been demonstrated through an adequate risk assessment Correct answer.
  4. The transaction value is below any reporting threshold

Explanation

Simplified measures are permitted only where lower risk has been properly identified and justified through risk assessment, and never where suspicion exists. Customer consent, threshold amounts or personal acquaintance are not valid substitutes for a documented risk determination.

Question 22AML/CFT Foundations, Terminology and the International Framework

Which statement correctly distinguishes a financial intelligence unit from a supervisory authority in the AML regime?

  1. The financial intelligence unit sets monetary policy, while the supervisor issues currency
  2. The financial intelligence unit hears criminal trials, while the supervisor imposes prison sentences
  3. The financial intelligence unit receives and analyses reports, while the supervisor examines compliance by obliged entities Correct answer.
  4. The financial intelligence unit licenses banks, while the supervisor prosecutes money launderers

Explanation

The financial intelligence unit is an intelligence hub that receives and analyses suspicious reports, whereas supervisors oversee and enforce obliged entities' compliance with AML requirements. Licensing, prosecution and adjudication sit with other authorities.

Question 23AML/CFT Foundations, Terminology and the International Framework

A jurisdiction's mutual evaluation finds that beneficial ownership information is available but frequently inaccurate. Which FATF criterion is most directly unmet?

  1. The requirement to criminalise terrorist financing
  2. The requirement to maintain a register of suspicious reports
  3. The requirement to license money transfer operators
  4. The requirement that ownership information be adequate, accurate and timely Correct answer.

Explanation

Recommendation 24 requires that adequate, accurate and timely information on the beneficial ownership and control of legal persons be available to competent authorities. Availability without accuracy fails this criterion regardless of other measures.

Question 24AML/CFT Foundations, Terminology and the International Framework

Which combination best reflects the FATF's current mandate beyond money laundering?

  1. Terrorist financing and proliferation financing Correct answer.
  2. Securities market conduct and consumer protection
  3. Trade facilitation and customs valuation
  4. Monetary policy transmission and exchange rate management

Explanation

The FATF mandate now covers combating money laundering, terrorist financing and the financing of proliferation of weapons of mass destruction. Securities conduct, monetary policy and trade facilitation belong to other international bodies.

Question 25AML/CFT Foundations, Terminology and the International Framework

Which scenario is the clearest illustration of a predicate offence relationship to a laundering charge?

  1. A trader falsifies invoices to move value, then conceals the resulting funds through property purchases Correct answer.
  2. A bank files a suspicious transaction report after reviewing an unusual deposit
  3. A customer requests a lower-risk classification after providing identity documents
  4. A regulator fines an institution for late customer due diligence records

Explanation

The invoice fraud generates criminal proceeds, and the property purchases conceal them, establishing the predicate offence and the subsequent laundering. Reporting, fines and classification requests are compliance events rather than predicate criminal conduct.

Question 26AML/CFT Foundations, Terminology and the International Framework

Which FATF Recommendation sets the international standard for customer due diligence, requiring financial institutions to identify and verify the identity of their customers?

  1. Recommendation 40
  2. Recommendation 10 Correct answer.
  3. Recommendation 20
  4. Recommendation 6

Explanation

FATF Recommendation 10 is the core CDD standard. It obliges financial institutions to identify and verify customers and beneficial owners, understand the purpose and intended nature of the business relationship, and conduct ongoing monitoring. Recommendations 6, 20 and 40 address targeted financial sanctions, suspicious transaction reporting and other matters respectively.

Question 27AML/CFT Foundations, Terminology and the International Framework

Which term describes the process by which a financial intelligence unit receives, analyses and disseminates suspicious transaction reports and other financial disclosures to competent authorities?

  1. Enhanced due diligence
  2. Financial intelligence Correct answer.
  3. Mutual evaluation
  4. Targeted financial sanctions

Explanation

Financial intelligence refers to the analysis and dissemination of information by an FIU. The FIU receives reports, analyses them to identify links and patterns, and passes actionable intelligence to law enforcement and other authorities. Mutual evaluation, EDD and targeted sanctions are distinct concepts in the AML/CFT framework.

Question 28AML/CFT Foundations, Terminology and the International Framework

A bank is designing its AML/CFT risk assessment. Which factor is most directly relevant to assessing the money laundering risk of a particular customer relationship?

  1. The number of years the bank's compliance officer has worked in the branch
  2. The bank's internal audit schedule for the coming financial year
  3. The physical location of the bank's head office within the city
  4. The customer's source of funds and the expected size and frequency of transactions Correct answer.

Explanation

Customer risk is driven by factors such as the customer's business activity, source of funds and wealth, and the expected volume and pattern of transactions. These determine the level of due diligence and monitoring required. The other options relate to institutional or operational matters that do not directly affect the risk posed by a specific customer.

Question 29AML/CFT Foundations, Terminology and the International Framework

Under the FATF standards, which situation requires a financial institution to apply enhanced due diligence?

  1. A low-value account opened by a local resident with a stable salary
  2. A customer who provides all required identification documents at onboarding
  3. A politically exposed person who is not a domestic customer and poses a higher risk Correct answer.
  4. A long-standing customer whose transactions are consistent with the known profile

Explanation

The FATF standards require enhanced due diligence for higher-risk relationships, including foreign politically exposed persons and their family members and close associates. EDD involves additional measures such as establishing source of wealth and funds and obtaining senior management approval. The other scenarios describe ordinary or lower-risk situations that do not automatically trigger EDD.

Question 30AML/CFT Foundations, Terminology and the International Framework

A country's mutual evaluation report notes that its supervisors have adequate powers on paper but rarely apply effective, proportionate and dissuasive sanctions for AML/CFT breaches. Which element of the FATF methodology is most directly relevant to this finding?

  1. The assessment of international cooperation in criminal matters
  2. The assessment of the country's level of terrorist financing risk
  3. The effectiveness assessment of supervisory and enforcement outcomes Correct answer.
  4. The technical compliance assessment of the legal framework

Explanation

The FATF methodology distinguishes technical compliance from effectiveness. The finding concerns whether supervisory powers are actually used to produce outcomes, which falls under the effectiveness assessment of supervision and enforcement. Technical compliance would only examine whether the legal powers exist, not whether they are applied.

Question 31Pakistan Legal and Regulatory Framework (AML Act 2010 and SBP/regulator requirements)

Under the Anti-Money Laundering Act, 2010, which body is the primary statutory authority responsible for analysing suspicious transaction reports and referring financial intelligence to investigation agencies?

  1. The National Counter Terrorism Authority
  2. The Securities and Exchange Commission of Pakistan
  3. The Financial Monitoring Unit Correct answer.
  4. The State Bank of Pakistan

Explanation

The Financial Monitoring Unit (FMU) was established under the AML Act 2010 as Pakistan's financial intelligence unit; it receives STRs and CTRs, analyses them, and disseminates intelligence to investigating agencies. SBP and SECP are supervisory regulators, while NACTA coordinates counter-terrorism policy rather than financial intelligence analysis.

Question 32Pakistan Legal and Regulatory Framework (AML Act 2010 and SBP/regulator requirements)

A bank branch in Lahore detects an unusual cash deposit pattern from a walk-in customer who declines to explain the source of funds. Under the AML Act 2010 reporting regime, which action is required?

  1. File a suspicious transaction report with the FMU without tipping off the customer Correct answer.
  2. Report the matter only to the branch manager and record it in the visitor log
  3. Inform the customer that a report will be filed unless documents are produced
  4. Wait until the account balance exceeds the currency transaction reporting threshold

Explanation

Suspicion-based reporting does not depend on any monetary threshold; when grounds for suspicion exist the reporting entity must file an STR with the FMU promptly. Tipping off the customer is prohibited, and internal escalation alone does not discharge the statutory reporting obligation.

Question 33Pakistan Legal and Regulatory Framework (AML Act 2010 and SBP/regulator requirements)

Which offence under the AML Act 2010 concerns knowingly entering into a transaction involving property that is the proceeds of crime in order to conceal its illicit origin?

  1. Money laundering Correct answer.
  2. Terrorist financing
  3. Currency smuggling
  4. Predicate offence

Explanation

Money laundering is defined in the AML Act 2010 as acquiring, converting, transferring or concealing proceeds of crime with knowledge or reasonable suspicion of their criminal origin. A predicate offence is the underlying crime generating the proceeds, not the laundering act itself.

Question 34Pakistan Legal and Regulatory Framework (AML Act 2010 and SBP/regulator requirements)

A customer approaches a bank to conduct a large cash transaction but refuses to provide a national identity document, insisting that the transaction proceed. What is the most compliant response under Pakistan's CDD requirements?

  1. Complete the transaction and report it as a currency transaction report only
  2. Complete the transaction but cap the amount at the CTR threshold
  3. Complete the transaction and request the identity document at the next visit
  4. Decline to conduct the transaction and consider whether an STR is warranted Correct answer.

Explanation

Customer due diligence requires reliable identification before establishing or continuing a business relationship or executing a transaction; where identification cannot be completed, the transaction should not proceed. The refusal to identify is itself a potential red flag that may justify an STR.

Question 35Pakistan Legal and Regulatory Framework (AML Act 2010 and SBP/regulator requirements)

Under the AML Act 2010, what is the primary purpose of a currency transaction report (CTR) filed with the FMU?

  1. To report only transactions that the bank believes are linked to terrorism
  2. To record transactions above the prescribed monetary threshold regardless of suspicion Correct answer.
  3. To notify the customer that their account is under review
  4. To replace the requirement to conduct customer due diligence

Explanation

A CTR is a threshold-based report capturing transactions above the amount prescribed in the AML Act and its rules, independent of whether any suspicion exists. Suspicion-based reporting is handled separately through STRs.

Question 36Pakistan Legal and Regulatory Framework (AML Act 2010 and SBP/regulator requirements)

Which statement best describes the role of the State Bank of Pakistan in the AML/CFT framework?

  1. It issues AML/CFT regulations for regulated financial institutions and supervises their compliance Correct answer.
  2. It acts as the financial intelligence unit for Pakistan
  3. It prosecutes money laundering cases before the special courts
  4. It maintains the national terrorist designation list under the UNSC resolutions

Explanation

SBP is the supervisory regulator for banks and other regulated financial institutions, issuing AML/CFT regulations and conducting inspections to assess compliance. Prosecution, terrorist designation, and financial intelligence analysis rest with other bodies.

Question 37Pakistan Legal and Regulatory Framework (AML Act 2010 and SBP/regulator requirements)

A compliance officer at a bank receives a request from a law enforcement agency for customer records relating to an ongoing money laundering investigation. What is the appropriate basis for responding?

  1. Provide the records only after obtaining the customer's written consent
  2. Refuse the request because customer confidentiality is absolute
  3. Provide the records only if the customer is already convicted of an offence
  4. Provide the records in accordance with the legal process and applicable confidentiality provisions Correct answer.

Explanation

Banking confidentiality is subject to lawful requests from competent authorities; records may be provided where the request follows the applicable legal process. Consent of the customer is not the test, and confidentiality is not absolute.

Question 38Pakistan Legal and Regulatory Framework (AML Act 2010 and SBP/regulator requirements)

Which of the following is a key element of an effective AML/CFT compliance programme expected of a regulated financial institution in Pakistan?

  1. An annual review conducted solely by the internal audit team without management input
  2. A programme that relies exclusively on automated software without human review
  3. A board-approved AML/CFT policy with an independent compliance function and ongoing staff training Correct answer.
  4. A policy that applies only to accounts opened after the regulation came into force

Explanation

Regulatory expectations require a documented, board-approved AML/CFT policy, a designated compliance function with independence, and continuous training and monitoring. Programmes limited in scope or lacking human judgement fall short of these expectations.

Question 39Pakistan Legal and Regulatory Framework (AML Act 2010 and SBP/regulator requirements)

A bank's customer is a politically exposed person (PEP) who wishes to open a high-value account. What additional measure is appropriate under SBP AML/CFT requirements?

  1. Open the account but restrict it to cash deposits only
  2. Obtain senior management approval and establish the source of wealth and funds Correct answer.
  3. Open the account normally because PEP status alone is not a risk factor
  4. Open the account only after the customer provides a tax clearance certificate

Explanation

For PEPs, enhanced due diligence includes senior management approval, establishing source of wealth and source of funds, and enhanced ongoing monitoring. PEP status is a recognised risk factor, so normal CDD is insufficient.

Question 40Pakistan Legal and Regulatory Framework (AML Act 2010 and SBP/regulator requirements)

Under Pakistan's AML/CFT regime, which authority is responsible for coordinating the national risk assessment and the national AML/CFT strategy?

  1. The Competition Commission of Pakistan
  2. The National Executive Committee for AML/CFT Correct answer.
  3. The Pakistan Banks' Association
  4. The Financial Monitoring Unit alone

Explanation

The National Executive Committee for AML/CFT, chaired at a senior government level, coordinates national AML/CFT policy, the national risk assessment and the national strategy. The FMU is a member and operational FIU but does not alone set national strategy.

Question 41Pakistan Legal and Regulatory Framework (AML Act 2010 and SBP/regulator requirements)

A bank employee learns that a colleague has been structuring cash deposits into amounts just below the reporting threshold on behalf of a customer. What is the most appropriate action?

  1. Report the matter to the customer's employer
  2. Report the matter internally and ensure an STR is filed with the FMU Correct answer.
  3. Advise the customer to consolidate deposits to avoid suspicion
  4. Record the deposits normally and take no further action because no threshold was crossed

Explanation

Structuring to evade reporting thresholds is itself a suspicious indicator and may constitute an offence; the matter must be escalated internally and reported to the FMU. Advising the customer or ignoring the pattern would compound the breach.

Question 42Pakistan Legal and Regulatory Framework (AML Act 2010 and SBP/regulator requirements)

Which of the following best describes a predicate offence in the context of the AML Act 2010?

  1. The act of failing to file a suspicious transaction report
  2. Any offence that generates proceeds which may then be laundered Correct answer.
  3. The offence of tipping off a customer about a report
  4. The offence of operating a bank without a licence

Explanation

A predicate offence is the underlying criminal activity whose proceeds are the subject of laundering; the AML Act schedules the offences that qualify. Failure to report and tipping off are separate AML Act offences, not predicate offences.

Question 43Pakistan Legal and Regulatory Framework (AML Act 2010 and SBP/regulator requirements)

Under the AML Act 2010, what is the significance of the threshold prescribed for currency transaction reporting?

  1. The threshold determines whether an offence of money laundering has occurred
  2. The threshold applies only to foreign currency transactions
  3. Transactions at or above the threshold must be reported to the FMU by the reporting entity Correct answer.
  4. Transactions below the threshold are exempt from all AML obligations

Explanation

The prescribed threshold triggers a mandatory CTR to the FMU for qualifying transactions. AML obligations such as CDD and STR filing apply regardless of the threshold, and the threshold does not define the money laundering offence.

Question 44Pakistan Legal and Regulatory Framework (AML Act 2010 and SBP/regulator requirements)

A non-bank financial institution regulated by SECP identifies a suspicious transaction. Which statement correctly describes its reporting obligation?

  1. It has no reporting duty because only banks are covered
  2. It must file an STR with the FMU under the AML Act framework Correct answer.
  3. It must report only if the amount exceeds the CTR threshold
  4. It must report only to SECP and not to the FMU

Explanation

The AML Act 2010 applies to a broad range of reporting entities, including SECP-regulated non-bank financial institutions, which must file STRs with the FMU. Reporting is suspicion-based and is not confined to banks or threshold amounts.

Question 45Pakistan Legal and Regulatory Framework (AML Act 2010 and SBP/regulator requirements)

Which of the following describes the offence of terrorist financing under Pakistan's AML/CFT framework?

  1. Structuring deposits to avoid reporting thresholds
  2. Laundering proceeds generated by tax evasion
  3. Operating an unlicensed money exchange business
  4. Providing or collecting funds with the intention that they be used for terrorist acts Correct answer.

Explanation

Terrorist financing involves providing, collecting or making available funds or property for terrorist purposes, regardless of whether the funds are from legitimate sources. The other options describe distinct offences or regulatory breaches.

Question 46Pakistan Legal and Regulatory Framework (AML Act 2010 and SBP/regulator requirements)

A bank discovers that a customer's account has been used to receive funds from a jurisdiction subject to targeted financial sanctions. What is the most appropriate immediate action?

  1. Close the account and return the funds to the sender
  2. Freeze the funds without delay and report to the competent authority Correct answer.
  3. Continue processing transactions but monitor the account closely
  4. Notify the customer and request an explanation before taking action

Explanation

Targeted financial sanctions require the immediate freezing of funds of designated persons and entities without prior notice, followed by reporting to the competent authority. Continued processing, returning funds, or notifying the customer would breach the sanctions regime.

Question 47Pakistan Legal and Regulatory Framework (AML Act 2010 and SBP/regulator requirements)

Which of the following best describes the record-keeping obligation for regulated financial institutions under Pakistan's AML/CFT requirements?

  1. Retain records only for accounts that have been closed
  2. Retain records only when a suspicious transaction report has been filed
  3. Retain records for one month and then destroy them to protect privacy
  4. Retain transaction and CDD records for the prescribed period and make them available to authorities Correct answer.

Explanation

Institutions must maintain transaction and customer identification records for the period prescribed by regulation, typically several years, and produce them to competent authorities on request. Record-keeping applies to all relevant transactions, not only closed accounts or reported cases.

Question 48Pakistan Legal and Regulatory Framework (AML Act 2010 and SBP/regulator requirements)

A bank is considering establishing a correspondent relationship with a foreign bank located in a jurisdiction with weak AML/CFT controls. What does the risk-based approach require?

  1. Rely solely on the foreign bank's self-certification of compliance
  2. Conduct enhanced due diligence on the respondent institution before establishing the relationship Correct answer.
  3. Proceed because correspondent relationships are outside AML/CFT scope
  4. Establish the relationship and review it after five years

Explanation

Correspondent banking relationships, particularly with institutions in higher-risk jurisdictions, require enhanced due diligence on the respondent bank's AML/CFT controls and ownership. Self-certification alone and deferred review do not meet the risk-based standard.

Question 49Pakistan Legal and Regulatory Framework (AML Act 2010 and SBP/regulator requirements)

What is the primary function of the Financial Monitoring Unit in relation to suspicious transaction reports?

  1. Prosecute offenders in the special courts
  2. Set monetary policy for the financial sector
  3. Issue banking licences to reporting institutions
  4. Receive, analyse and disseminate financial intelligence derived from STRs Correct answer.

Explanation

The FMU acts as the financial intelligence unit, receiving STRs and CTRs, analysing them and disseminating actionable intelligence to investigation agencies. Prosecution, licensing and monetary policy belong to other institutions.

Question 50Pakistan Legal and Regulatory Framework (AML Act 2010 and SBP/regulator requirements)

A customer opens an account for a charitable organisation and requests that most donations be transferred to overseas beneficiaries. Which risk factor is most relevant for enhanced scrutiny?

  1. The customer's preference for retaining a low account balance
  2. The possibility of diversion of charitable funds for terrorist financing Correct answer.
  3. The customer's request for a cheque book
  4. The use of a domestic bank branch for account opening

Explanation

Charities and non-profit organisations are recognised as higher risk for terrorist financing abuse because funds may be diverted to prohibited purposes, particularly where overseas transfers are involved. Low balances, branch location and cheque books are not meaningful risk indicators.