Which are reasons organized crime groups often use front companies? (Choose two.)
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A. B. C. D. E.DE
Organized crime groups often use front companies for several reasons, but the two most common reasons are as follows:
B. They can use the company's bank accounts to comingle deposits with those of legal businesses.
Front companies are essentially shell companies that have no real operations or assets but are used to conceal the true ownership and source of funds. Organized crime groups often establish front companies to use their bank accounts for the purpose of mixing their illicit proceeds with legitimate funds. By doing so, they can make it more difficult for law enforcement agencies and financial institutions to detect and trace their illegal activities. Co-mingling funds in this way can also enable criminals to make their illicit proceeds appear legitimate and avoid scrutiny.
D. Front companies are generally subject to lighter due diligence requirements by banks and other financial services providers.
Front companies are often registered using fake identities or with minimal information that conceals the true ownership and control. Banks and other financial institutions are required to perform due diligence checks on their customers to prevent money laundering and terrorist financing. However, these checks are often not as thorough for front companies as they are for legitimate businesses. Criminals take advantage of this fact to create front companies that can be used to access the financial system and move illicit funds. The use of front companies to evade due diligence checks has become a significant challenge for financial institutions and regulators alike.
A, C, and E are incorrect answers:
A. Front companies generally charge higher prices than legitimate companies, so profit margins are higher.
This statement is false. Front companies often do not have any legitimate business operations and exist solely to facilitate criminal activities. They may charge higher prices for their services, but this is not the primary reason they are used.
C. Using multiple front companies can make it easier to control an entire sector of the economy.
This statement is also false. While organized crime groups may seek to control certain sectors of the economy, the use of front companies is just one tactic they may use to achieve this. It is not the primary reason for establishing front companies.
E. Front companies are not subject to income and other sales taxes because they are not registered.
This statement is false. Front companies may be registered, but they often use false identities or minimal information to conceal the true ownership and control. Additionally, the fact that they are not subject to taxes is not a primary reason for using front companies.