Front Companies: Organized Crime's Strategy for Concealment and Illicit Gains

Understanding the Role of Front Companies in Organized Crime

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Question

Why do organized crime groups often use front companies? (Choose two).

Answers

A. Because they are not registered, front companies are not subject to income and other sales taxes.

B. Because using multiple front companies can make it easier to control an entire sector of the economy.

C. Because they are generally subject to lighter due diligence requirements by banks and other financial services providers.

D. Because front companies generally charge higher prices than legitimate companies, so profit margins are higher.

E. Because they can use the company's bank accounts to comingle deposits with those of legal businesses.

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Explanations

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A. B. C. D. E.

https://en.wikipedia.org/wiki/Front_organization

Organized crime groups often use front companies to conceal their illegal activities and to appear legitimate. The use of front companies can provide a range of benefits to criminals, including access to financial services, hiding the true source of funds, and avoiding scrutiny from law enforcement and regulatory agencies. Below are the two reasons why organized crime groups often use front companies:

Because they are generally subject to lighter due diligence requirements by banks and other financial services providers. Criminals often use front companies to gain access to the financial system. They do this by opening bank accounts in the name of the front company, which they can then use to deposit and transfer funds. Because front companies are often small, they are generally subject to lighter due diligence requirements by banks and other financial institutions, which can make it easier for criminals to use them to launder money or move illicit funds across borders. For example, banks may conduct less scrutiny on smaller companies than they would on larger, well-known companies.
Because using multiple front companies can make it easier to control an entire sector of the economy. Organized crime groups may also use front companies to gain control over an entire sector of the economy. By setting up multiple front companies in a particular industry, they can gain influence over market prices, restrict competition, and engage in other anti-competitive behavior. This can be particularly effective in sectors that are already subject to limited competition or where there are high barriers to entry. Through this strategy, organized crime groups can establish a dominant position in a particular market, enabling them to profit from their illicit activities and further expand their criminal enterprises.

It is important to note that using front companies is illegal and can result in severe legal and financial consequences. Therefore, it is important for businesses and financial institutions to conduct proper due diligence on their customers and to report any suspicious activity to the appropriate authorities.

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